Final answer:
Both monopolistically competitive markets and monopoly markets can set price above marginal cost and can earn positive profits in the short run. However, only monopolistically competitive markets are characterized by firms earning zero economic profits in the long run, as new competitors erode these profits; monopolies might sustain long-term profits under certain conditions.
Step-by-step explanation:
The question is asking about the commonalities between monopolistically competitive markets and monopoly markets. In both market structures:
- Price is above marginal cost: This is generally true since both monopolistically competitive firms and monopolies have some degree of market power that allows them to set prices higher than the marginal cost of production.
- Firms earn zero profit in the long run: Monopolistically competitive firms tend to earn zero economic profits in the long run due to entry of new competitors, although monopolies can maintain positive profits if they remain protected from competition. It's important to note that zero economic profit still allows for firms to earn normal profits, which are included in the average total cost.
- Firms can earn positive profit in the short run: Both types of market structures allow firms to earn positive profits in the short term, but over the long run, monopolistically competitive markets will see profits eroded by new entries, while monopolies may sustain profits if barriers to entry remain high.
- Price equals average total cost in the long run: This is true for monopolistically competitive markets as they achieve zero economic profits in the long run, but may not necessarily hold for monopoly markets.
It's important to remember that while monopolistically competitive firms and monopolies can share some characteristics, there are also key differences, particularly regarding the sustainability of profits and the effects of entry and exit of firms in the market.