Question

Explain in your own words how much profit one can expect when competing in a market structure of monopolistic competition. Verify that you answer is complete.

Answer 1

In short run ,A firm in monopolistic competition market can earn positive, negitive or zero Profit, depending on what is his good demand curve and number of firms in Short run.

But In long run Monopolistic competition firms earn zero economic profit.If they earn positive Profit in short run,new firms will enter the market in long run,and Decrease their market share thus lead to decrease in their good demand and lead to zero Profit.

And if firm earn negitive Profit ,then some firms will exit the market,lead to increase their market share and thus their good demand Increases and lead to zero Profit.

So Firm can expect zero Profit if it operate in Monopolistic competition.