Chapter 15, Problem 13P

To determine

Profit earned by a typical monopolistic firm in the long run and profits when the firm operates at minimum average cost

Concept Introduction:

Monopolistic Competition - An imperfect market competition where with a large number of sellers selling differentiated product is called the monopolistic competition. It exhibits the elements of both a monopoly and perfect competition. The defining characteristics of the market are- It has a large number of firms, relative free entry and exit of firms, product differentiation, imperfect information, transportation costs, inelastic demand and inefficient production.

Normal and Supernormal profit - An entrepreneur is a factor of production whose profit is his income. This incentive keeps him in business. It is an integral part of the cost structure of the firm and is aggregated with rent, wages, interest and other explicit expenses to define the cost of production. Any profit over and above this implicit cost paid as remuneration to the producer, is the supernormal profit.