Consider the following statements A monopolistically competi

Consider the following statements: A monopolistically competitive firm\'s short-run profits must necessarily be zero. A monopolistically competitive firm\'s short-run profits can be positive. A monopolistically competitive firm\'s long-run profits are always zero. A monopolistically competitive firm\'s long-run profits can be positive. Which of these statements is true?

Solution

Correct Answer:

III) A monopolistically competitive firm’s long run profits are always zero.

Explanation:

In long run, new firms enter in to the market when other firms are earning positive economic profit. It wipes out the positive profit and it becomes zero. Similarly, firms exit also when other firms are making losses. It again makes profit level to be zero in long run.