Question

Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will ________ as more firms enter the industry, causing profits to ________.

Answer 1

The answer is decrease; fall to zero

Step-by-step explanation:

Monopolistic Competition shares the characteristics of perfect market like:

1. There are many buyers and sellers

2. Products are identical.

3. No barriers to entry

and characteristics of monopoly industry like:

1. Products are differentiated and with this some firms can set a higher price for their products. This differentiation in product must be communicated through adverstiment.

Therefore, in the long run the demand for a firm's dry cleaning service will drop because there will be many buyers and sellers due to the no barrier to entry. Many buyers will have many alternatives to choose from.

Profit will decrease to zero in the long run because the presence of many buyers will dive the price to zero(normal profit and zero economic profit).