No Long-Run Economic Profits 1717 unread replies.1717 replies. a) Explain & depict the LongRun equilibrium for...

No Long-Run Economic Profits 1717 unread replies.1717 replies. a) Explain & depict the LongRun equilibrium for a monopolistically competitive firm. *Draw and upload graphs to depict the long-run

Expert Solution

Answer) Monopolistic Competition is the market where there are large number of buyers and sellers selling differentiated products with free entry and exit in the market.

MonopolisticCompetition has a downward sloping AR & MR curve because for selling additional output they have tioreduce their price but MR & AR under monopolistic competitions is flatter than under monopoly with free entry and exit firms always make normal profit in the long run. In the short run the firms can make normal profit, super normal profit or loss dependent on market position of AR & AC in equilibrium but in the long run abnormal profit of the firm will result in increasing entering by new firm which reduces profit by shifting the AR curve downward ( falling share in the market). It continues until new equilibrium is attained with tangency of AR & AC.

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Rahul Sunny answered 7 months ago

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