The market for laundry detergent is monopolistically competitive. Each firm owns one brand,
and each brand has effectively differentiated itself so that it has some market power (i.e., faces a
downward sloping demand curve). Still, no brand earns economic profits, because entry causes
the demand for each brand to shift in until the seller can just break even. All firms have identical
cost functions, which are U-shaped.
(a) Is this market in long-term or short-term equilibrium? Explain your claim?
Sample Solution
