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August 30, 2015

Homework Help: Economics

Posted by Jake on Saturday, December 9, 2006 at 4:31pm.

Isn't a monopolistic competitor most likely to earn zero economic profits in the long run, due mainly to the assumption of easy entry and exit?

I would argue no, a monopolistic competitor is likely to earn economic profits. Almost by definition, a monopolistic competitor exhibits some monopoly power. The power arises from brand loyality, some general or sepecific product differentiation, or some institutional reason -- that cannot be exactly copied by a new firm entering the industry.

That said, you could easily argue that the marginal firm (the last to enter and/or first to leave an industry) would most likely earn zero economic profits, even if it is monopolistic competitor.

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