In perfect competition, one result of the model was that there were no economic profits in the long run. In a monopoly, the firm typically earns a positive economic profit. Why is there this difference?
What will be an ideal response?
The monopolist enjoys economic profit because of barriers to entry. In perfect competition, if there are economic profits, other firms will enter the industry, expand industry supply, and drive down the price and profit level until there are no economic profits. In a monopoly, although there are economic profits, entry does not occur because of barriers; therefore, the successful monopolist can enjoy economic profits in the long run.
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Consumer surplus exists when
A) it costs less to produce goods than buyers must pay for them. B) consumers value the good more highly than what they must pay to buy it. C) taxes on goods are less than the appropriate amount. D) the marginal benefit of the good is always equal to or less than the price of the good. E) the price of the good is greater than the marginal cost of producing a unit of the good.
All of the following factors are held constant when price changes on a demand curve except:
A) income. B) quantity demanded. C) population. D) tastes and preferences.
The sacrifice ratio is
A) the amount of output lost when the inflation rate is reduced by one percentage point. B) the percentage reduction in inflation when output falls one percentage point below potential. C) the percentage change in employment when output declines by one percentage point. D) the number of percentage points that the unemployment rate rises when output declines by one percentage point.
In which oligopoly model(s) do firms earn zero profit?
A) Cournot B) Bertrand C) Stackelberg D) Oligopoly firms always earn positive economic profits.