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4,2 Short-Term Equilibrium of the Firm under Monopolistic Competition, While discussing short term equilibrium of the firm cas dee competition we would like to emphasize one important point _ oe fo Profits earned by the firm in question. If the firm earns abnormal profits by ringing oy anew and popular product, it will have to be very alert if it wants to continue these profits. The reason is that the existence of abnormal profits will serve as a temptation to other firms in the same group to bring out closely similar products and Compete away the abnormal profits of the firm in question. It, therefore, follows that in monopolistic competition any abnormal profits earned by a firm will tend to be competed away in the long period. In the short run, of course, a firm under monopolistic competition may be able to earn abnormal profits because other firms are not in a position to bring out closely similar products in that period nor can new firms enter the group during the short period. In the short period, therefore, the abnormal profits may exist, but in the long period they are bound to be competed away by other firms. The result will be that in monopolistic competition, the long- period equilibrium position will be one where the individual firm earns only normal profits. According to Prof. Chamberlin, the firm under monopolistic competition has a wider range of decisions to make than under perfect competition. The firm may vary its price and with it, its sales and output ; it may vary the quality of its product and may engage in sales promotion activities, | We shall now study the price-output adjustments of the firm in the short run with the objective of earning maximum Profits (or, attaining equilibrium). As in other market firms, the firm under monopolistic competition attempts to maximize its profits. It will, therefore, choose that price and level of output at which it wil 
