The green shaded area to the right illustrates profits now being earned by the typical firm in this industry. Since such firms are producing where MR = MC the industry is in a short run equilibrium.

    Since we are investigating monopolistic competition with free entry, this can't possibly be a long run equilibrium. Profits mean that owner are earning more than would be possible in their next best opportunity. In the long run this will attract new firms to the industry. To continue our example, new coffee houses will open.

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