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When a monopolistically competitive industry is in long-run equilibrium

When a monopolistically competitive industry is in long-run equilibrium

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Answer #1

Monopolistically competitive firm earns normal profit in the long run because AR = AC.

Monopolistic competition refers to a market situation with large number of buyers and sellers selling closely related or differentiated products but not identical product. The products are close substitutes of each other. Product differentiation is the important feature of monopolistic competition. Each firm under monopolistic competition enjoys the monopoly over the brand of the commodity and thus the firm has the control over the price of the commodity. Firms earn positive profit in the short run but in long run new firms enter in the market and reduces positive profit to normal profit.

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