1 Do Monopolistically competitive firms generate a longrun p

1. Do Monopolistically competitive firms generate a long-run profit?

2. Why is a monopolistic competition said to be inefficient?

Solution

1.In the long run, the monopolistically competitive firms break even. This means these firms zero economic profit in the long run. Hence, they do not generate long run profit.

2. A monopolistic competition said to be inefficient because in the long run firms produce the output at a point where average cost is not at its minimum. Also, the price is higher than the marginal cost.