Question

Economic profits are considered signals to the marketplace If the firm and monopolistcally competitive market are earning economic profits or losses in the short run would you expect them to continue doing so in the long run? Explain?

Answer 1

In a perfectly competitive market, in the long run, economic profits are zero and hence like in short run, there is no signal of profit or loss in the long run as the profit is zero.

In the case of a monopolistic competitive market, th economic profits will continue to give signals in the long run as in the short run as monopolistic firms continue to earns profits or losses even in the long run because of the product heterogeniety and other feautures of the market