Question

Why is long-run profit for the monopolistically competitive firm always zero while that of the monopolist usually positive?

Answer 1

Because of free entry and exit.

In the monopolistic competition, there are many firms and free entry and exit. And in monopoly there is single seller and barriers to entry.

So when there is positive economic profit, new firm have incentive to enter the market and when there is negative economic profit, existing firms exit the industry. At the end of this entry and exit process, monopolistically competitive firm earns zero economic profit in long run. But as we know, Monopoly is a single seller, there is barriers to entry so firm can earn positive economic profit in long run.

answered by: anonymous