A monopolistically competitive industry does not display ________ in either the short-run, when firms are making...

A monopolistically competitive industry does not display ________ in either the short-run, when firms are making economic profits and losses, nor in the long-run, when firms are earning ________.

allocative efficiency; positive economic profits
allocative efficiency; zero economic profits
productive efficiency; negative economic profits

Solutions

Expert Solution

Option 2

allocative efficiency; zero economic profits

The firm has a downward-sloping demand curve and firms produce at MR=MC to maximize the profit so there is no allocative efficiency in the short run and long run. The market has free entry and exit so the profit, in the long run, is zero.

Rahul Sunny answered 1 year ago

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