Table of Contents
- 1 Can earn economic profit in the short-run?
- 2 Can a monopolist earn economic profits?
- 3 Do monopolists always earn positive short-run economic profit?
- 4 Why is a monopoly able to earn an economic profit in the long run?
- 5 Do monopolies make profit in the long run?
- 6 Can a monopoly firm always earn an abnormal profit?
- 7 How is a monopoly able to make supernormal profits?
- 8 How is short run equilibrium with normal profit under monopoly?
Can earn economic profit in the short-run?
An economic profit is anything earned in addition to normal profits. Sometimes economists refer to economic profit as “super-normal profit.” While there may be economic profits earned in the short-run, there can be no explicitly economic profits in the long-run of a perfectly competitive industry.
Can a monopolist earn economic profits?
Monopolies, unlike perfectly competitive firms, are able to influence the price of a good and are able to make a positive economic profit.
How do firms under monopoly make economic profit in the short-run?
In the short run, a monopolistically competitive firm maximizes profit or minimizes losses by producing that quantity where marginal revenue = marginal cost. If average total cost is below the market price, then the firm will earn an economic profit.
Do monopolists always earn positive short-run economic profit?
Monopolists always earn positive short-run economic profit. A profit-maximizing monopoly will always produce at the minimum point of its average total cost (ATC) curve.
Why is a monopoly able to earn an economic profit in the long run?
Monopolies are able to earn economic profits in the long run because there are barriers to entry on the market.
Can monopoly incur losses?
Summary of Short-run Equilibrium in Monopoly In the short-run, a monopolist firm cannot vary all its factors of production as its cost curves are similar to a firm operating in perfect competition. Also, in the short-run, a monopolist might incur losses but will shut down only if the losses exceed its fixed costs.
Do monopolies make profit in the long run?
Companies in a monopolistic competition make economic profits in the short run, but in the long run, they make zero economic profit. The latter is also a result of the freedom of entry and exit in the industry.
Can a monopoly firm always earn an abnormal profit?
Abnormal profit is usually generated by an oligopoly or a monopoly; however, firms often try to hide this fact, both from the market and government, in order to reduce the chance of competition, or government intervention in the form of an antitrust investigation.
Can a monopoly make an economic loss 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.
How is a monopoly able to make supernormal profits?
This diagram shows how a monopoly is able to make supernormal profits because the price (AR) is greater than AC. Usually, supernormal profit attracts new firms to enter the market, but there are barriers to entry in monopoly, and this enables the monopoly to keep supernormal profits.
How is short run equilibrium with normal profit under monopoly?
(b) Short Run Equilibrium With Normal Profit Under Monopoly: There is a false impression regarding the powers of a monopolist. It is said that the monopolistic entrepreneur always earns profits. The fact, however, is that there is no guarantee for the monopolist to earn profit in the short run.
Is the diagram for a monopoly the same in the long run?
The diagram for a monopoly is generally considered to be the same in the short run as well as the long run. Profit maximisation occurs where MR=MC. This diagram shows how a monopoly is able to make supernormal profits because the price (AR) is greater than AC.