Question

1. Is there a presence of economic profit for Microsoft (Monopoly)?

Long run-

Short run-

2. Is there a presence of economic profits for Netflix (oligopoly)?

Long run-

short run-

3. Is there a presence of economic profits for Mcdonalds ( Monopolistic Competition)?

Long run-

Short run-  

Answer 1

Ans. Economic profit is present in short run in all the types of market structures including monopoly, oligopoly and monopolistic competion. But economic profit in long run depends on the fact that whether the market allows free entry of firms or not because if free entry is allowed, then firms will be attracted to the market making profit in short run and enter the market which will increase the supply of goods in the market till the point where economic profit becomes zero. Thus,

a) Microsoft will earn economic profit in both short and the long run as the industry in which Microsoft is operating requires huge investment to initiate the business. So, it acts as barrier to entry. So, no firms enter the industry and Microsoft keeps earning profit in long run also.

b) Netflix will earn economic profit in both short run and in long run. This is because in VOD industry few players have large share in the market posing as a barrier to entry enabling them to earn profits in long run also.

c) McDonalds can earn economic profits only in short run because more and more eateries can join the industry which will decrease the demand for McDonald's products in long run leading to normal profits only.

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