The monopolistically competitive firm’s economic profits tend toward zero in the long run. Why is this so?

A) Monopolistically competitive firm’s are rarely able to maintain the corporate discipline necessary to sustain profits in the long run.
B) If a monopolistically competitive firm is profitable for more than 2 years, the Justice Department orders a corporate restructuring to pull the company back to a normal rate of return.
C) In the long run, other firms will successfully offer substitutes for the profitable firm’s product, and competition will eliminate economic profits.
D) Even though the monopolistically competitive firm can successfully maintain barriers to entry, keeping competition at bay becomes very expensive.

ANSWER:

C