Isn't a monopolistic competitor most likely to earn zero economic profits in the long run, due mainly to the assumption of easy entry and exit?

I would argue no, a monopolistic competitor is likely to earn economic profits. Almost by definition, a monopolistic competitor exhibits some monopoly power. The power arises from brand loyality, some general or sepecific product differentiation, or some institutional reason -- that cannot be exactly copied by a new firm entering the industry.

That said, you could easily argue that the marginal firm (the last to enter and/or first to leave an industry) would most likely earn zero economic profits, even if it is monopolistic competitor.

1 answer

This is due to the assumption of easy entry and exit, which implies that the market is competitive and that firms will earn only normal profits in the long run.
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