What makes a business successful in monopolistic competition? Provide a short-run profit graph and long-run profit...

What makes a business successful in monopolistic competition? Provide a short-run profit graph and long-run profit graph.

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Expert Solution

A business becomes successful in the monopolistic competition, when the business successfully differentiates its products & services from the other rival products. It creates superior value proposition among the consumers and put value based pricing on the products & services to earn profit. For example, Apple Company creates differentiation with its products iPhone and iPad. Due to superior quality, design and innovation, value based pricing is put and profit is maximized by the company.

Though, the economic profit is earned in the short run and to maintain the profitability, the business has to innovate on a regular basis to create sustainable differentiation in the market. It makes the business to be successful in the monopolistic competition.

In long run, firms earn zero economic profit in the monopolistic competition.

In the short run, the shaded area is the economic profit earned by the firm, but in long run, ATC becomes tangent to the demand curve. It makes economic profit to be zero.

Rahul Sunny answered 1 year ago

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