Is zero economic profit inevitable in the long run for a monopolistically compet
ID: 1122187 • Letter: I
Question
Is zero economic profit inevitable in the long run for a monopolistically competitive firm?
A.
No, a firm could try to continue making a profit in the long run by simply offering goods that are cheaper to produce, even if those goods have less value than the goods competing firms offer.
B.
No, a firm could try to continue making a profit in the long run by reducing production costs and improving its products.
C.
No, a firm could try to continue making a profit in the long run by producing a product identical to those of competing firms.
D.
Yes, there is nothing the firm can do to avoid zero economic profit in the long run.
Explanation / Answer
Answer - Zero economic profit is not inevitable in the long run for a monopolistically competitive firm because a firm could try to continue making a profit in the long run by reducing production costs and improving its products. In this market we find product differentiation thus firm can earn profit in the long run. They can improve quality of their products and reduce cost.
Option B is the correct answer.
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