In the long run, all factors of production are variable. Also, two of the assumptions of firms in perfect competition are free entry and exit, as well as perfect resource mobility. In the long run, firms making abnormal profit will attract new firms, which will enter freely due to the two assumptions already stated.
Why can a firm in monopolistic competition not earn abnormal profits in the long run?
A monopoly firm can make abnormal profits in the long run because of lack of freedom of entry and exit of firms in the market. Due to freedom of entry and exit of firms under monopolistic competition, a firm cannot earn abnormal profits in the long run.
Why is monopolistic competition inefficient in the long run?
A monopolistically competitive firm might be said to be marginally inefficient because the firm produces at an output where average total cost is not a minimum. A monopolistically competitive market is productively inefficient market structure because marginal cost is less than price in the long run.
Why is the long run equilibrium for a monopolistically competitive market different from a perfectly competitive market?
What is the difference between a monopolistic market and perfect competition? In a perfectly competitive market, price equals marginal cost and firms earn an economic profit of zero. in long-run equilibrium, firms earn zero economic profits.
Is a monopolist guaranteed to earn profits?
D) the monopolist is guaranteed to earn an economic profit. The monopolist’s profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output.
What happens when a profit maximizing firm in a monopolistically competitive market is in long-run equilibrium?
When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity, it will be earning positive economic profits. d. its demand curve will be tangent to its average-total-cost curve.
Can monopolies have negative profit?
A monopoly maximizes profit by choosing the quantity where Marginal Revenue (MR) = Marginal Cost (MC). In the short-run, if this quantity has an Average Total Cost (ATC) greater than the corresponding price on the demand curve, then the firm would earn negative profit ([Price – Average Total Cost] x Quantity).
