One way to enter a monopolistically competitive market is to get a franchise for a nationally advertised brand. If you’d like to get into the economy motel market, you could pay a $35,000 franchise fee to Accor, the owner of the Motel 6 brand. The term of the renewable franchise agreement is 15 years. In addition, you will pay Accor a royalty of 5 percent of your sales revenue. There are training programs available to build your hotelier skills.

How much money are you likely to earn in your motel? You will compete with nearby motels and hotels for customers, and because the barriers to entering the industry are relatively low, the competition for customers is likely to be keen. In the monopolistically competitive motel market, you are likely to make zero economic profit, with total revenue equal to total cost. Your total cost includes the franchise fees and royalties, as well as the opportunity cost of your time and the opportunity cost of any funds you invest in the business.

Question.

Are monopolistically competitive firms profitable?