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In long run under perfect competition new firms enters into the market and share the profit of existing firms due to free entry and exit .the new firms in the long run enters into the market until they earn profit and leaves the market if they suffer looses.
In short if there is free entry and exit
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Why must profits be zero in long-run competitive equilibrium?
The short answer: entry of new firms and exit of old ones. If profits are positive, new firms will enter the industry, piling in until they compete away all these profits. If long-term profits are negative, firms will exit until the price rises enough so that the firms who stay in the market can break even.
What is the most important determinant of whether or not firms receive economic profits in the long run?
Customer satisfaction.
Types of profits in the long run in oligopoly?
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.
What is a purely competitive industry?
Firms are price takers, price is equal to marginal costs, demand is perfectly elastic, i.e. constant and horizontal, the firms makes zero economics profits.
What kind of a profit is earned by perfect competition in the long run?
In the long period, economic profit cannot be sustained. The arrival of new firms or expansion of existing firms (if returns to scale are constant) in the market causes the (horizontal) demand curve of each individual firm to shift downward, bringing down at the same time the price, the average revenue and marginal revenue curve. The final outcome is that, in the long run, the firm will make only normal profit (zero economic profit).
What is the definition of expanding industry?
An industry whose firms earn economic profits and for which an increase in output occurs as new firms enter the industry.
Why must profits be zero in long-run competitive equilibrium?
The short answer: entry of new firms and exit of old ones. If profits are positive, new firms will enter the industry, piling in until they compete away all these profits. If long-term profits are negative, firms will exit until the price rises enough so that the firms who stay in the market can break even.
What is the most important determinant of whether or not firms receive economic profits in the long run?
Customer satisfaction.
Types of profits in the long run in oligopoly?
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.
What is a purely competitive industry?
Firms are price takers, price is equal to marginal costs, demand is perfectly elastic, i.e. constant and horizontal, the firms makes zero economics profits.
What kind of a profit is earned by perfect competition in the long run?
In the long period, economic profit cannot be sustained. The arrival of new firms or expansion of existing firms (if returns to scale are constant) in the market causes the (horizontal) demand curve of each individual firm to shift downward, bringing down at the same time the price, the average revenue and marginal revenue curve. The final outcome is that, in the long run, the firm will make only normal profit (zero economic profit).
Why do Firms trying to avoid competition?
Firms try to avoid competition so that they can set higher profits and earn greater profits.
How oligopoly originate?
Generally, collusion occurs when participating firms can increase their short-run economic profits by controlling supply, acting like a monopoly.
In a perfectly competitive market do firms exhibit productive efficiency?
in the short-run they are not able to but in the longrun it can be attainerd as businesses want to lower their average costs!
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.
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.
An industry is best defined as a group of firms that?
An industry is best described as a group of firms
