In the long run, a monopolistically competitive industry will end up in zero-profit-equilibrium. Each firm makes zero profit. The typical firm’s demand curve is just tangent to its average total cost curve at its profit-maximizing output.

While a monopolistic competitive firm can make a profit in the short-run, the effect of its monopoly-like pricing will cause a decrease in demand in the long-run. This increases the need for firms to differentiate their products, leading to an increase in average total cost.

In the short run, a monopolistically competitive firm maximizes profit or minimizes losses by producing that quantity where marginal revenue = marginal cost. If average total cost is below the market price, then the firm will earn an economic profit.

What happens in the long run in a monopolistically-competitive firm? As new firms enter and compete, demand for the existing firm’s product decreases (and when demand shifts left, so does marginal revenue) until a long-run equilibrium is reached in which no firms earn economic profit.

Can you summarize the final outcome of a monopolistically competitive firm in the short run? Firms will increase output since marginal revenue exceeds marginal cost. Economic profits will rise in the long run, new firms will enter, and this will lower demand for each firm’s output; thus, profits will go down again.

Yes, the zero economic profit is inevitable in the long-run for monopolistically competitive firms because, in the long run, new firms will enter the…

Economic profit is zero in the long run because of the entry of new firms, which drives down the market price. For an uncompetitive market, economic profit can be positive. Uncompetitive markets can earn positive profits due to barriers to entry, market power of the firms, and a general lack of competition.

In the long-run, profits and losses are eliminated because an infinite number of firms are producing infinitely-divisible, homogeneous products. Firms experience no barriers to entry, and all consumers have perfect information.

​No, a firm could try to continue making a profit in the long run by simply offering goods that are cheaper to​ produce, even if those goods have less value than the goods competing firms offer. ​Yes, there is nothing the firm can do to avoid zero economic profit in the long run.

allocative efficiency

Unlike a monopoly, with its high barriers to entry, a monopolistically competitive firm with positive economic profits will attract competition. As long as the firm is earning positive economic profits, new competitors will continue to enter the market, reducing the original firm’s demand and marginal revenue curves.

Why Do Competitive Firms Stay in Business If They Make Zero Profit? Profit equals total revenue minus total cost. Total cost includes all the opportunity costs of the firm. In the zero-profit equilibrium, the firm’s revenue compensates the owners for the time and money they expend to keep the business going.

Break-even point is that point of output level of the firm where firms total revenues are equal to total costs (TR = TC). Normal profit is included in the cost of production. Thus, at break-even point a firm gets only normal profit or zero economic profit.

In this method, the value of goodwill is calculated by multiplying the average estimated profit or average future profit with the number of years of purchase. Simple average: In the simple average method, the goodwill is calculated by multiplying the average profit with the agreed number of years of purchase.

The shutdown rule states that a firm should continue operations as long as the price (average revenue) is able to cover average variable costs. In addition, in the short run, if the firm’s total revenue is less than variable costs, the firm should shut down.

The firm can achieve this goal by following two rules. First, the firm should operate, if at all, at the level of output where marginal revenue equals marginal cost. Second, the firm should shut down rather than operate if it can reduce losses by doing so.

The answer is that shutting down can reduce variable costs to zero, but in the short run, the firm has already paid for fixed costs. As a result, if the firm produces a quantity of zero, it would still make losses because it would still need to pay for its fixed costs.

A firm might operate at a loss in the short-run because it expects to earn a profit in the future as the price increases or the costs of production fall. In fact, a firm has two choices in the short-run. Each unit produced generates more revenue than cost, thus, it is profitable to produce than to shut down.

The break-even price is the price necessary to make normal profit. It is a price which includes all costs, including variable and fixed costs. At the break-even price, the firm neither makes a loss or profit.

Why are firms willing to accept losses in the short run but not in the long​ run? average variable cost​ curve, while in the long​ run, a​ firm’s exit point is the minimum point on the average total cost curve. There are fixed costs in the short run but not in the long run.