When a market is monopolistically competitive, the typical firm in the market is likely to experience a
A)positive profit in the short run and in the long run.
B)positive or negative profit in the short run and a zero profit in the long run.
C)zero profit in the short run and a positive or negative profit in the long run.
D)zero profit in the short run and in the long run.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms can earn positive or negative profits in the short run due to product differentiation and brand loyalty. However, in the long run, the entry and exit of firms will drive profits to zero as firms cannot sustain an economic profit due to the relatively easy entry into the market.

When a Market Is Monopolistically Competitive, the Typical Firm in the Market