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Author Question: Why does a firm in monopolistic competition earn zero economic profit rather than an economic profit ... (Read 116 times)

panfilo

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on: Jun 29, 2018
Why does a firm in monopolistic competition earn zero economic profit rather than an economic profit in the long run?
 
  What will be an ideal response?

Question 2

The famous saying, There is no such thing as a free lunch means
 
  A) we do not live in a free country.
  B) the value of our dollar keeps declining.
  C) people face tradeoffs.
  D) people do not care about others enough.


Chou

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Entry into monopolistically competitive markets is easy because there are no barriers to entry. So when firms in monopolistic competition have an economic profit, other firms are attracted to enter the industry, thereby decreasing profits for everyone. Entry continues as long as there is an economic profit so, in the long run when all entry is completed, the firms earn zero economic profit.

Answer to Question 2

C


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