Respuesta :
Question: 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.
Answer:
When a market is monopolistically competitive, the typical firm in the market is likely to experience a positive or negative profit in the short run and a zero profit in the long run.
Explanation:
The firm with short run profits only breaks in the long run due to the decrease in demand which in turn increases the total cost. This means that in long run, the monopolistically competitive firm will make zero economic profit.
Monopolistically competitive model is the term used when many firms are selling the same products but not identical due to which any other firm can act as a substitute for others. Due to this if any firm raises the price then the customers would switch to other firms. Hence the typical firm can maximize the profit by producing the quantity in which the marginal revenue equals marginal cost.
