Can monopolistic competitive firms earn a positive economic 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.
Why do monopolistic competition earn normal profit in the long run?
The monopolistically competitive firm’s long‐run equilibrium situation is illustrated in Figure . 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. Excess capacity.
Why can a monopoly make a positive economic profit even in the long run a monopoly can make positive economic profit in the long run because _____?
A monopoly can make positive economic profit in the long run because… barriers to entry prevent other firms from entering the market and sharing the profit.
When a monopolistic competitor earns a positive economic profit?
If one monopolistic competitor earns positive economic profits, other firms will be tempted to enter the market.
When firms in monopolistic competition are making positive economic profit in the short 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.
Why are firms in monopolistic competition unable to earn an economic profit in the long run?
In the long-run, the demand curve of a firm in a monopolistic competitive market will shift so that it is tangent to the firm’s average total cost curve. As a result, this will make it impossible for the firm to make economic profit; it will only be able to break even.
Why can a monopoly make an economic profit in the long run quizlet?
In the long run, monopolists: can earn an economic profit because of barriers to entry. Monopolies create a welfare loss because at their profit maximizing quantity: the additional benefits of increasing output would be greater than the additional costs.
What happens in the long run if a monopolistic competitive firm is making short run profits?
While a monopolistic competitive firm can make a profit in the short-run, the effect of its monopoly-like pricing will cause a decrease in demand in the long-run. This increases the need for firms to differentiate their products, leading to an increase in average total cost.
Why don t some firms in monopolistic competition earn losses in the long run?
20) Why don’t some firms in monopolistic competition earn losses in the long run? A) The firms have enough monopoly power to ensure they always earn profits.
How does a monopolistic competitor choose its profit-maximizing quantity of output?
It competes against a large number of firms selling slightly different products. How does a monopolistic competitor choose its profit-maximizing quantity of output? The firm will produce at a level of output where marginal revenue equals marginal cost. Firm X competes in a monopolistically competitive market.
What is the difference between monopolistic competition in the long run?
Monopolistic Competition in the Long-run. The difference between the short‐run and the long‐run in a monopolistically competitive market is that in the long‐run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short‐run.
How does a monopolistic firm choose its level of output?
Unlike a perfectly competitive firm, a monopolistically competitive firm ends up choosing a level of output that is below its minimum efficient scale, labeled as point b in Figure . When the firm produces below its minimum efficient scale, it is under‐utilizing its available resources.
What is the social cost of a monopolistically competitive market structure?
In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.
What is the difference between short run and long run competition?
Monopolistic Competition in the Long-run The difference between the short‐run and the long‐run in a monopolistically competitive market is that in the long‐run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short‐run.