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Monopolistic Competition and Collusion

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Even if firms in a monopolistically competitive market collude successfully and fix price, economic profit will still be competed away. Explain (include an explanation of economic profit in your explanation). Will price be higher or lower under such an agreement in long-run equilibrium than would be the case if firms didn't collude? Explain.

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Solution Summary

This solution discusses long run economic profit in monopolistic competitive industries in 200 words.

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Even if a firm in a monopolistically competitive market collude and fix price, the economic profits in the long run will still be competed away. Economic profits refer to the profits after all the explicit and implicit (opportunity) costs have been taken into account. The firm may still earn ...

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