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In a monopolistically competitive market, use a diagram to show what will happen to profits, output,...

In a monopolistically competitive market, use a diagram to show what will happen to profits, output, profits and efficiency in the long run.

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Answer #1

As it can be seen in the graph above, there is no economic profit in the long run in a monopolistically competitive market. Since if a firm is making profit, other firms will enter and produce the output making sure that no one earns any profit as there is free entry.

So. price = LRAC in the long run at the profit maximizing output where MC=MR and since it does not occur in the lowest value of AC, it will never be an efficient production even in the long run.

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