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Author Question: Why are firms in monopolistic competition unable to earn an economic profit in the long run? What ... (Read 107 times)

khang

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on: Jun 29, 2018
Why are firms in monopolistic competition unable to earn an economic profit in the long run?
 
  What will be an ideal response?

Question 2

In a market with asymmetric information, ________.
 
  A) buyers tend to forget relevant information about the good being traded
  B) buyers set the price of the good being traded
  C) buyers and sellers have different information about the good being traded
  D) buyers have very low bargaining power


coreycathey

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

While firms in monopolistic competition do not produce an identical product, such as perfectly competitive firms, they face the same problem other competitive firms face: freedom of entry. When firms in monopolistic competition are earning an economic profit, other firms will enter the market. Entry decreases the demand for the products of the existing firms and thereby decreases their economic profit. Firms will continue to enter the market until the economic profit equals zero.

Answer to Question 2

C


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