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Question -

 What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?



Answer -

  1. The reason why firm in monopolistic competition earns zero profit in the long run is free entry and exit of firm.
  2.  If firm earns super-normal profits in the short run then new entry will take place in the long run. If the firm is incurring losses in the short run, firm will leave in the long run.
  3. The result is zero abnormal profits in the long run.

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