In: Economics
In at least 200+ respond to the following (please include any references used)
Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium? Why?
Perfect competitors describe a scenario existing in a market in
which sellers and purchasers are so plentiful and well
well-informed and the market cost of an item is not within the
control of individual sellers and buyers. A monopoly is the market
structure where there is a single seller or company that supplies
products and services in the entire market. There are barriers to
entry and exit of brand-new companies in this market
structure.
In the short run, both Monopoly and Perfect competitors make
favorable financial earnings. A monopoly company makes favorable
economic earnings in the brief run as the Monopolist is a sole
seller. There are heavy barriers to entry and exit of firms so
there is no worry of competitors too. Perfect Competitive firm
earns positive financial revenues in the short run as there is a
lot of purchasers and sellers. All the companies sell uniform
products at a uniform price. The difference in economic revenues in
between a competitive firm and a Monopoly firm in the brief run
depends on the sense that Monopolist makes more financial revenues
than a perfectly competitive firm because of the cost
discrimination, i.e. charging various prices from numerous
consumers.
In the long run, Perfect Competitive firms make zero financial
earnings because of the complimentary entry and exit of the firms.
It suggests that if the best competitive firms are making financial
revenues in the brief run, numerous new companies will enter the
market and thereby get rid of economic revenues. On the other hand,
if firms are incurring losses in the market, existing firms will
leave the market and thus all the competitive companies make zero
financial profit in the long run. Monopoly company might make a
positive financial revenue, zero economic revenue or negative
economic earnings based on the below 3 condition
Condition 1: Market Price > Equilibrium Price => Positive
economic profits
Condition 2: Price = Minimum of ATC curve => Zero economic
profits
Condition 3: Price < Minimum of ATC curve => Negative
economic profits
The distinction in financial revenues in between a competitive firm and a Monopoly firm, in the long run, lies in the sense that a Perfect Competitive firm will certainly earn zero financial revenues whereas, Monopolist profits depends upon the above-explained conditions. A monopoly company might take longer to reach the long-run stability.