In the long run, a representative firm in a monopolistically competitive industry will end up earning a normal profit, but not an economic profit.
What should a monopolistically competitive firm do in the short run?
A monopolistically competitive firm maximizes profit or minimizes losses in the short run by producing the quantity where marginal revenue = marginal cost. If the average total cost is less than the market price, the firm will make an economic profit.
What is the difference between monopolistic and nonprice competition?
Monopolistic market structures also engage in non-price competition because they are not price takers. Because they have relatively fixed market prices, resulting in inelastic demand, they engage in product differentiation. Because of the way the market is designed, monopolistic markets engage in non-price competition.
What happens to the demand curve when there are short-run losses?
Monopolistic market structures also engage in non-price competition because they are not price takers. Because they have relatively fixed market prices, resulting in inelastic demand, they engage in product differentiation. Because of the way the market is designed, monopolistic markets engage in non-price competition.
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