The following is a list of characteristics that describe a firm operating under monopolistic competition. Indicate whether these characteristics occur in the short run, the long run, or both.

a. The firm produces a differentiated product.

b. The firm maximizes profits.

c. The firm earns zero economic profit.

d. All factors of production (inputs) are variable.

a. Both

b. Both

c. Long Run

d. Long Run

Explanation:

a. Differentiating products ensures that a Company's products have an edge in the market that could gain them more customers and hence increase sales. The company therefore will differentiate in both the Short and the long run to ensure that they improve sales and Profitability.

b. The company will always seek to maximize profits regardless of whether it is in the short run or the long run. Maximising profit ensures that the company does not waste resources and remains viable and sustainable.

c. When a company is making Economic profit in the short run it attracts competitors such that in the long run, these competitors will drive down the profit that the firms in the market are making until no firm is making Economic profit.

d. In the long run, all factors of production are variable. This means that even though production capacity could not be changed in the short run, in the long run this is no longer the case. A well known example of this is Facility. In the short run, a company cannot build a new facility to bolster production but in the long run it will be able to.