Question

What will happen in the long run if there are abnormal profits in monopolistic competition?

Answer 1

$\bf{Monopolistic \: Competition}$

Monopolistic competition is a form of market in which there are a number of buyers and sellers, differentiation in commodity and firms have partial control over price.

In monopolistic competition, there is no barrier on entry and exit of firms hence in a long run firms can only gain normal profit.

Now let's come to the main question,

what will happen in the long run if there are abnormal profits in monopolistic competition?

$\green{Answer :-}$

If there is abnormal profit in monopolistic competition then new firms will enter in the market so as to gain profit. But in this situation, market supply will increase excessively and no change in market demand. Abnormal profit will decrease and will be turned into normal profit in a long run. This is because of no restrictions on entry and exit of firms into monopolistic competition.

Answer 2

Answer:

$\large{\underline{\underline{\textsf{\maltese{\red{answer}}}}}}$

Monopolistic competition is a form of market in which there are a number of buyers and sellers, differentiation in commodity and firms have partial control over price.

In monopolistic competition, there is no barrier on entry and exit of firms hence in a long run firms can only gain normal profit.

Now let's come to the main question,

what will happen in the long run if there are abnormal profits in monopolistic competition?

$\green{Answer :-}$

If there is abnormal profit in monopolistic competition then new firms will enter in the market so as to gain profit. But in this situation, market supply will increase excessively and no change in market demand. Abnormal profit will decrease and will be turned into normal profit in a long run. This is because of no restrictions on entry and exit of firms into monopolistic competition.