Final answer:
Firms in monopolistic competition generally cannot maintain long-term economic profits due to new entrants eroding market power. They contribute to the economy by increasing product variety and innovation. Despite this, they still strive for differentiation to attract consumers in the short term.
Step-by-step explanation:
Regarding whether a firm in monopolistic competition can maintain long-term economic profits because their product is perceived to be different, it is generally expected that in the long run, these firms will not maintain economic profits. In monopolistic competition, product differentiation provides variety and innovation to consumers, which can be preferred over homogeneity. However, due to the relatively low barriers to entry, other firms can enter the market, offering similar differentiated products, which can erode the original firm's market power and lead to zero economic profits in the long run.
It's important to note that the perceived demand curve for a monopolistically competitive firm is more elastic than that of a monopoly because of the presence of close substitutes. Furthermore, these firms choose their profit-maximizing quantity and price by equating marginal cost and marginal revenue, just like firms in other market structures.
Even without long-term economic profits, these firms contribute to the economy by increasing product variety and fulfilling consumer desires for different products, leading to non-price competition like customer service, free delivery, and quality guarantees.