Question

In the long​ run, monopolistically competitive firms A. make zero accounting profits. B. can make either positive economic profits or zero economic​ profits, and always make positive accounting profits. C. make positive economic profits. D. make zero economic profits.

Answer 1

Answer:

D) make zero economic profits.

Explanation:

Monopolistically competitive firms will maximize their accounting profits at the output level where marginal revenue = marginal cost (the same as perfectly competitive firms or monopolies).

Economic profits are not the same as accounting profits, since the accounting profits only consider expenses occurred while economic profits consider opportunity costs. Opportunity costs are the extra costs or benefits lost from choosing one activity or investment over another alternative one. In the case of companies, the opportunity cost of making one investment is equal to the profits that could be made through another investment.

Economic profits = accounting profits - opportunity costs