[Economics] The monopolistically competitive firm will most likely earn a normal profit in the long run becaus

Question

Please help me out with my HW!!

The monopolistically competitive firm will most likely earn a normal profit in the long run because of

A. product differentiation.

B. many buyers and sellers.

C. easy entry and exit.

D. b and c

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Answer 1

A. product differentiation.

Answer 2

Monopoly means the eradication of competition. What can be considered a "normal profit" when the monopoly has complete market domination, no competition, and can set whatever prices for it product that it wants. If the monopoly corporation has something absolutely essential for the function of society say, like gasoline, it has many buyers: big customers like trucking companies to individual customers like commuters and cab drivers. So how do you determine what a normal profit is; if there is competition, like we assume takes place in the petroleum industry, the profit there can be determined by middlemen (speculators, who purchase whole shipments and then put them up for bid after temporarily taking the oil OFF the market). So in this case, a monopoly is no less effective than outright competition in a profit-making scheme. It doesn't take an economist to figure this out. Only by watching the nightly news can you become confused about what is really taking place.

Answer 3

D

From Wikipedia:

Monopolistically competitive markets have the following characteristics:

    * There are many producers and many consumers in a given market.

    * Consumers perceive that there are non-price differences among the competitors' products.

    * There are few barriers to entry and exit[1].

    * Producers have a degree of control over price.