Which of the three industries (perfect competition, monopolistic competition, monopoly) can sustain long-run economic profit? Why?

Expert Solution

Answer: Monopoly can sustain with economic profit during long-run

Explanation: Among three different market structures like perfect competition, monopolistic competition and monopoly, only monopoly sustain with economic profit during long-run. The reasons for sustaining economic profit by monopoly during long-run are as follows.

1. The opportunity to make economic profit is greatly depend on the level of competition. In monopoly there is single seller because there is restriction on entry; hence there is no competition, so the firm enjoying economic profit in monopoly by operating at profit maximizing level of output where MC=MR during long run. Whereas there are many sellers in perfect competition and monopolistic competition market structure due to the characteristics of free entry and free exit of firms or no restriction on entry. Which, ultimately encourages competition and firms sustains with normal profit during long-run.

2. In perfect competition and monopolistic competition, during short run to maximize the profit firms produce that level of output where MC=MR. But enjoying economic profit during short run will motivates other firms to join the business as a result during long run the operating firm in perfect competition and monopolistic competition will get only normal profit.

Rahul Sunny answered 1 year ago

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