Economics Perfect Competition Questions
Monopolistic competition in the long run refers to a market structure where there are many firms selling differentiated products, allowing for some degree of market power. In this scenario, firms have the freedom to enter or exit the market, leading to potential profits or losses. Over time, in the long run, new firms may enter the market due to the absence of significant barriers to entry. As a result, the demand for existing firms' products decreases, leading to a decrease in their market share and profits. In the long run, firms in monopolistic competition will reach a state of equilibrium where they earn normal profits, meaning that their total revenue equals their total costs. However, due to product differentiation, each firm will have a unique market position and may continue to earn some level of economic profit.