First thank you very much for your previous guidance, I am grateful.
I have a question about dsge model with stock market where monopolistically competitive firms have used profits as dividends and distribute to equity holders.
My question is in the steady state, can monopolistically competitive firms have positive profit and positive dividends?
Thank you very much and look forward to hearing from you!
Of course. Monopolists will charge a markup over marginal costs, implying that they turn an operating profit. However, many papers assume fixed costs equal to the operating profits so that in steady state, there 0 profits to be earned and there is no incentive for entry or exit.