Question

Under monopolistic competition, the long period firm demand curve is theoretically problematical because of interdependency. How is this problem resolved?

Answer 1

Monopolistic Competition is a market structure featuring few large and many small firms, fairly low entry barriers similar goods and relatively high competition. Over the short-run, firms can usually gain some abnormal profit, but over the long run, other firms entering the market due to the low entry barriers will compete and make the price lower.

Long Run Equilibrium

In this diagram, the firm produces where the LRMC, or long run marginal cost curve, and the marginal revenue curve meets. The LRMC describes the cost of producing one more of the good when no factors of production are fixed over the long run. That point is, in the long run, equivalent to the LRAC, or long run average cost curve, which shows them average cost of producing one good at this quantity over the long run. Because the LRAC curve is above the AR curve, there is no abnormal profit, as the average cost of the good equals the average revenue of the good. Thus, in the long run, equilibrium is acquired.in long run its impossible to earn abnormal profit because of free entry of firm's.

Problem of monopolistic firm is resolved in long term by restricted free entry and exist of firm or by removing in dependency on monopolistic in long firm firm entry when they think that's profitable and exist when they in loss...

It can be resolved by removal on free entry and exist.