Final answer:
Both perfect competition and monopolistic competition result in zero economic profit in the long run. While perfect competition features identical products and prices meeting average costs, monopolistic competition includes product differentiation but still has prices meeting average costs without long-term economic profits.
Step-by-step explanation:
In the context of long-run equilibrium, both perfect competition and monopolistic competition lead to a situation where firms earn zero economic profit. Option 1 is the correct answer. For the perfect competition, long-run equilibrium is achieved when no new firms want to enter and no existing firms want to exit the market, mainly because economic profits have reduced to zero due to the high level of competition. On the other hand, monopolistic competition sees firms earning zero economic profit in the long run as well, although they might have earned a profit or a loss in the short run. This occurs because the entry of new firms and the exit of existing ones drive the market to a point where products are sold at a price equal to the average cost, leaving no room for economic profit.
This zero economic profit scenario in monopolistic competition is different from perfect competition because it incorporates elements of product differentiation and marketing, which allows for some degree of pricing power and consumer choice. However, this does not prevent the market forces from driving profit down to zero eventually.