What holds true regarding the similarities and differences between monopoly and monopolistic competition ?
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Answer: C. The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
Explanation
Monopolists earn positive economic profits in the long run due to high barriers to entry. Monopolistic competitors earn zero economic profits in the long run due to free entry. Free market entry eliminates economic profits in monopolistic competition over time. Monopoly markets feature a single seller dominating the entire industry supply. Monopolistic competition involves many firms selling differentiated products with low entry barriers. Firms in monopolistic competition face downward-sloping demand curves for products.
Fast-food chains operate in monopolistic competition with differentiated menu offerings. Utility companies operate as monopolies protected by regulatory franchise barriers. Long-term zero economic profit in monopolistic competition resembles perfect competition outcomes. Both market structures feature downward-sloping demand curves for their goods. Monopolists charge prices above marginal cost while monopolistic competitors do so as well. Neither market structure operates at the efficient scale of production.
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