Chapter 12R, Problem 18MCQ

To determine

The correct option that defines the profit earned by the monopolistic competitive industry and its output level in long run.

Answer to Problem 18MCQ

Option c is correct.

Explanation of Solution

Explanation for correct option:

c.

In monopolistic competitive industry, if prices are increased, demand for the product will decrease. In long run, firm earns economic losses which will reduce in the long run as losses are eliminated by the firms leaving the firms with zero economic profits. Therefore, option c is correct.

Explanation for incorrect options:

a.

Monopolistic competitive firms earn economic profit in short-run whereas it incurs losses in long run which can be reduced by the firms entering or exiting the industry. So, losses in long run will decrease. Therefore, option a is incorrect.

b.

The prices are kept lower by the monopolistic competitive firms to increase the demand. This results in economic losses in long run instead of economic profit. Therefore, option b is also incorrect.

.

d.

Monopolistic competitive firms usually earn economic profit in short-run instead of earning profit in long run. Therefore, option d is incorrect.

e.

Firm earns economic losses which can be eliminated when firms with zero economic profit leave or enter the industry. It can be decreased in long run. Therefore, option e is incorrect

Economics Concept Introduction

Monopolistic market structure: Market structure where there are many firms selling identical but products with different features. There are low barriers to entry and exit which allows firms to enter the market easily.