Question

Suppose a firm XYZ is a member of a monopolistically competitive industry and is 

earning super normal profit. What would be its demand curve over time and how your response 

would change if XYZ becomes member of an oligopoly; since implicit collusion tends to be 

fragile, oligopolistic firm often have a strong desire for price stability. Comment.

Answer 1

A firm makes excess profit if the firm makes above minimum return to keep the firm in the business.

The firm will start to make normal profits.

In oligopoly the supernormal profits will be wiped out by the low prices.