Economics 11th Edition by William McEachern

Exercise 4

ZERO ECONOMIC PROFIT IN THE LONG RUN In the long run, a monopolistically competitive firm earns zero economic profit, which is exactly what would occur if the industry were perfectly competitive. Assuming that the cost curves for each firm are the same whether the industry is perfectly or monopolistically competitive, answer the following questions.
a. Why don't perfectly and monopolistically competitive firms produce the same equilibrium quantity in the long run?
b. Why is a monopolistically competitive industry said to be economically inefficient?
c. What benefits might cause consumers to prefer the monopolistically competitive result to the perfectly competitive result?