Which market structure can earn long run economic profits?

monopoly
The characteristics of monopoly include: (1) one firm, (2) one product, and (3) no entry (Table 5.1). The monopoly solution is shown in Figure 5.2. Note that long-run profits can exist for a monopoly, since barriers to entry halt any potential entrants from joining the industry.

Do monopolies make economic profit in the long run?

Monopolies can maintain super-normal profits in the long run. As with all firms, profits are maximised when MC = MR. In general, the level of profit depends upon the degree of competition in the market, which for a pure monopoly is zero.

Is it possible to earn positive economic profit in the long run?

When price is equal to average cost, economic profits are zero. Thus, although a monopolistically competitive firm may earn positive economic profits in the short term, the process of new entry will drive down economic profits to zero in the long run.

Are profits maximized in the long run?

Profit maximization is the short run or long run process by which a firm determines the price and output level that will result in the largest profit. Firms will produce up until the point that marginal cost equals marginal revenue.

Do oligopolies make economic profit in the long run?

It provides powerful incentives for innovation, as firms seek to earn profits in the short run, while entry assures that firms do not earn economic profits in the long run. Oligopolies are often buffeted by significant barriers to entry, which enable the oligopolists to earn sustained profits over long periods of time.

Which of the following market structure will earn zero economic profit in the long run?

In sum, in the long-run, companies that are engaged in a perfectly competitive market earn zero economic profits. The long-run equilibrium point for a perfectly competitive market occurs where the demand curve (price) intersects the marginal cost (MC) curve and the minimum point of the average cost (AC) curve.

Why will monopolist always make economic profit in the long run?

The existence of high barriers to entry prevents firms from entering the market even in the long‐run. Therefore, it is possible for the monopolist to avoid competition and continue making positive economic profits in the long‐run.

Can a monopoly make a loss in the long run?

While a monopolist can maintain supernormal profits in the long run, it doesn’t necessarily make profits. A monopolist can be a loss-making or revenue-maximizing too. If abnormal profits are available in the long run, other firms will enter the competition with the result abnormal profits will be eliminated.

Can perfectly competitive firms make an economic profit in the long run explain?

In a perfectly competitive market, firms can only experience profits or losses in the short-run. In the long-run, profits and losses are eliminated because an infinite number of firms are producing infinitely-divisible, homogeneous products.

Why is economic profit zero in the long run?

Economic profit is zero in the long run because of the entry of new firms, which drives down the market price. For an uncompetitive market, economic profit can be positive. Uncompetitive markets can earn positive profits due to barriers to entry, market power of the firms, and a general lack of competition.

How do firms maximize profit in the long run?

The general rule is that the firm maximizes profit by producing that quantity of output where marginal revenue equals marginal cost. To maximize profit the firm should increase usage of the input “up to the point where the input’s marginal revenue product equals its marginal costs”.

How do you find the profit maximizing quantity in the long run?

Price or marginal revenue equals marginal cost at q0, ensuring that profit is maximized. The long-run equilibrium requires that both average total cost is minimized and price equals average total cost (zero economic profit is earned).

Why are economic profits zero in the long run?

For a competitive market, economic profit can be positive in the short run. In the long run, economic profit must be zero, which is also known as normal profit. Economic profit is zero in the long run because of the entry of new firms, which drives down the market price.

Why is a zero economic profit a normal profit?

A business will be in a state of normal profit when its economic profit is equal to zero, which is why normal profit is also called “zero economic profit.” Normal profit occurs at the point where the resources available to the firm are being efficiently used and could not be put to better use elsewhere.

Can a monopolistic competitive firm earn long run profit?

At this point, the firm ‘s economic profits are zero, and there is no longer any incentive for new firms to enter the market. Thus, in the long‐run, the competition brought about by the entry of new firms will cause each firm in a monopolistically competitive market to earn normal profits , just like a perfectly competitive firm .

When can monopolist earn an economic profit?

A monopolist can earn an economic profit only when: average total cost is less than price . Under both perfect competition and monopoly, a firm: sets marginal cost equal to marginal revenue. For a monopolist: price is above marginal revenue.