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December 18, 2022

Why are oligopolies able to earn both short-run economic profits and long-run economic profits

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A profit-maximizing price searcher will expand output as long as marginal revenue either exceeds or is equal to marginal cost, lowering its price or raising its price until the midpoint of their demand curve and highest total revenues are achieved.

Why are oligopolies able to earn both short-run economic profits and long-run economic profits, while price taking firms like perfect competitors can only earn short-run economic profits?

Review the characteristics of perfect competition and imperfect competition (monopolistic competition, oligopoly, and monopoly). Barriers to entry don’t exist for perfect competition, but barriers to entry exist for imperfect competition. What are the implications of barriers to entry to the firm and competition? Review consumer surplus and producer surplus; what happens to consumer surplus is price is above equilibrium, or in this case above normal profits?

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