Compare and contrast the potential for a perfectly competitive firm and a monopolistically competitive firm to earn positive economic profits in the short run versus the long run. Explain your reasoning

What will be an ideal response?

Both firms can earn positive economic profits in the short run. So long as price is greater than average total cost at the profit-maximizing level of output, a firm will earn a positive economic profit. In the case of both of these types of firms, however, long-run economic profits will equal 0. This is because of the assumption of ease of entry and exit (resource mobility). To be specific, if existing firms are earning positive profits, this will encourage entry by new firms. Entry will continue until all positive profits are competed away and firms are earning an economic profit of 0. At this point there is no incentive for either entry into, or exit from, the market.