The model of monopolistic competition characterizes the market for plumbing services.This market is initially in long-run equilibrium,but then there is an increase in the market demand for plumbing services.We expect that in the long run,the economic profits of typical firms will be:
A)typical of those earned by monopoly firms.
B)negative.
C)zero.
D)positive but less than the level typically earned by monopoly firms.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of monopolistic competition, firms earn zero economic profits due to the entry and exit of firms in response to profit opportunities. When demand increases, firms may initially earn positive profits, but the entry of new firms into the market increases competition and drives profits back to zero.

The Model of Monopolistic Competition Characterizes the Market for Plumbing