Problem

Would you rather have efficiency or variety? That…

06:53

Problem 15 Hard Difficulty

Make a case for why monopolistically competitive industries never reach long-run equilibrium.

Answer

The long-run equilibrium is considered when firms providing same products are having zero profits in long-run but in monopolistically competitive industries, the differentiation between products is an ongoing process because there are innovation and changes one after another by these firms in order to compete with each other and to avoid coping of their product. But this action leads to fact that monopolistically competitive firms are not able to reach long-run equilibrium.

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Principles of Microeconomics for AP® Courses

Chapter 10

Monopolistic Competition and Oligopoly

Discussion

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Diya P.

October 23, 2021

Make a case for why monopolistically competitive industries never reach long-run equilibrium.

Diya P.

October 23, 2021

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Video Transcript

So let's talk about why. Or let's make an argument, presto. Why monopolistic competitive firms might not recheck the Librium. Not theoretically, we know when we assert that monopolistic competitive firms in the long run makes your profits, and that will be the equilibrium. But realistically, let's talk about why they might not. And the answer to that is that constant innovation and advertisement will probably keep the company's making positive profits. For example, the iPhone, right? We know that as soon as the iPhone came out and it had a lot of features, they were going to be other phones coming out that are similar right there. We're going to be other producers coming into this market in a lot of touch. Screen phone started to come out after that. I don't requalify from what's the 1st 1? Well, it's assumed that it was. A lot of other people started to produce these touch screen phones. Ah, and if that was the end of it, then we would be able to say OK, in the long run, there was going to be syrup profits. But what did I what did Apple do? Well, appetite coming up with new innovations How do we improve it? How do we differentiate this from the other products in this constant? Coming up with new ideas? Implementation this. Advertise it as completely different. Uh, is where would keep some prophet in the long run. Okay, so it's hard for a guest for, ah, firm to ever really reach. That's your profit delivery. Um, if we have constant innovations off this good

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