Question

A monopolistically competitive firm is like a monopolist in that it decides its quantity where ________ is equal to MC and decides its price on the demand curve. It is like a perfectly competitive firm in that it only has a ______ profit in the long run due to free entry and exit.

MR: Positive

P: Normal

MR:Normal

P: Positive

Answer 1

MR, Normal

Both monopolistically competitive firms and monopolist decides its quantity where marginal revenue(MR) is equal to marginal cost(MC) because both the firms maximizes their profit at this point.

Both perfectly competitive firm and monopolistic competitive firm earn normal profit in the long run due to free entry and exit of the firm. Free entry and exit of firms make sure that firms only earn normal profit in the long run by wiping out positive profits.