Question

Explain the long run dynamics in a monopolistically competitive industry that is currently making positive economic profits. How do we define long run equilibrium in such markets? Explain.

Answer 1

Explanation: In the long-term monopolistic competition, if companies obtain another benefit, they will go to this business by shifting the supply curve to the right, which will cause the price to fall, eliminating that extraordinary benefit.

If, on the contrary, companies incur losses, some will leave the market, which will shift the supply curve to the left, raising the price and eliminating losses.

The null long-term benefit is what differentiates this type of monopoly market where it is possible to obtain benefits in a lasting way (since there is no entry and exit of companies).