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Supernormal profits due to high barriers to entry. Profits in the long run are determined by the barriers to entry. If there is high barriers to entry, new firms cannot enter the industry easily and hence cannot competed with existing firms for profits. Existing firms would be able to enjoy supernormal profits. On the contrary, weak barriers to entry means that the long run profits would be competed away by new firms entering the industry, hence firms would earn normal profits. Oligopoly market is characterised by high barriers to entry, largely due to non-price competition such as branding, advertising, etc. High barriers could also be due to economies of scale and high fixed cost.
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In what market structures is it possible for Firms to make positive profit in the long run?
Monopoly and Oligopoly are both the only firms that may make positive profit in the long run. Under LONG-RUN MARKET TENDENCY OF PRICE AND ATC: Monopoly P>ATC and Oligopoly P>ATC both will have postive profits, however it possible to turn to zero profits if there isn't capitalization of the profits or any rent-seeking activities or if the market is contestable. But moreover, the answer you're looking for is the above that bother Monopoly and Oligopoly will have positive profit in the long run.
What are the characteristics of an oligopoly?
There are three main characteristics of oligopoly. They are industry dominated by a small number of large firms, the firms sell identical or similar products, and the industry has significant barriers to enter.
How oligopoly originate?
Generally, collusion occurs when participating firms can increase their short-run economic profits by controlling supply, acting like a monopoly.
Can a monopoly earn economic profits in the long run?
Yes
Why would the music industry be an example of an oligopoly?
The music industry is dominated by a few large firms which dominate the market, thus enabling the industry to exert its market influence. They also partake in collusion to ensure that barriers to entry into the music industry remain high for new firms to enter. The characteristics of an oligopoly are as follows: Few, large number of firms dominate the market. High barriers to entry Long run abnormal profits Price makers- have the ability to determine market price. Maximise profits where MC=MR. The music industry fits into the above characteristics and therefore is considered to be an oligopoly.
In what market structures is it possible for Firms to make positive profit in the long run?
Monopoly and Oligopoly are both the only firms that may make positive profit in the long run. Under LONG-RUN MARKET TENDENCY OF PRICE AND ATC: Monopoly P>ATC and Oligopoly P>ATC both will have postive profits, however it possible to turn to zero profits if there isn't capitalization of the profits or any rent-seeking activities or if the market is contestable. But moreover, the answer you're looking for is the above that bother Monopoly and Oligopoly will have positive profit in the long run.
What are the characteristics of an oligopoly?
There are three main characteristics of oligopoly. They are industry dominated by a small number of large firms, the firms sell identical or similar products, and the industry has significant barriers to enter.
How oligopoly originate?
Generally, collusion occurs when participating firms can increase their short-run economic profits by controlling supply, acting like a monopoly.
Can a monopoly earn economic profits in the long run?
Yes
Why would the music industry be an example of an oligopoly?
The music industry is dominated by a few large firms which dominate the market, thus enabling the industry to exert its market influence. They also partake in collusion to ensure that barriers to entry into the music industry remain high for new firms to enter. The characteristics of an oligopoly are as follows: Few, large number of firms dominate the market. High barriers to entry Long run abnormal profits Price makers- have the ability to determine market price. Maximise profits where MC=MR. The music industry fits into the above characteristics and therefore is considered to be an oligopoly.
Entry and exit in a purely competitive industry occur in the. True Or False?
Long run, so that long-run economic profits are zero.
How do economist determine whether a market is an oligopoly?
A market is an oligopoly when a small number of sellers dominate a market or industry. Economists use a set of criteria to determine whether a market form is an oligopoly. These criteria include profit maximization conditions, ability to set price, high barriers to market entry, a small number of firms, long-run abnormal profits, product differentiation, perfect knowledge of cost and demand functions, interdependence on other firms' marketing strategies, and non-price competition.
What is the most important determinant of whether or not firms receive economic profits in the long run?
Customer satisfaction.
Compare monopoly and monopolistic competition?
A monopoly is a market which has only one firm, the firm has market power, and there are barriers to entry. The long run profits for a monopolist may be greater than zero. Monopolistic competition is more closely related to perfect competition than monopoly. In monopolistic competition, there are many firms in the market. However, each firm has product differentiation. An example of monopolistic competition would be the jeans industry. There are many different types/quality of jeans e.g. True Religion, Levi's and Lee's. Products are somewhat differentiated, but, as in perfect competition, the long run profit = 0. Oligopoly is a market in which there are only a few firms, each firm has market power, and there is much product differentiation between the firms. The long-run profit of oligopoly can be greater than zero, because there are barriers to entry in the market.
In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
In the long-run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
Supernormal profit of monopolistic competition?
In the short run, abnormal profits exist but in the long run, it gets eroded away because new firms enter the industry.
