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In long run under perfect competition new firms enters into the market and share the profit of existing firms due to free entry and exit .the new firms in the long run enters into the market until they earn profit and leaves the market if they suffer looses.
In short if there is free entry and exit
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What does Economic profits in an industry suggest that the industry?
Economic profits in an industry suggest that the industry is operating efficiently and that firms within it are earning returns above the normal profit level. This can attract new entrants, leading to increased competition. Over time, as new firms enter, the supply may increase, which can drive prices down and reduce economic profits, moving the industry toward a long-term equilibrium. Ultimately, sustained economic profits may indicate that firms have a competitive advantage or that there are barriers to entry protecting them from competition.
When perfectly competitive firms in an industry are earning positive economic profits, how does this impact market equilibrium and the long-term sustainability of the industry?
When perfectly competitive firms in an industry are earning positive economic profits, it attracts new firms to enter the market, increasing competition. This leads to a decrease in prices and profits until they reach a long-term equilibrium where firms earn normal profits. This process ensures the long-term sustainability of the industry by preventing excessive profits and encouraging efficiency.
Why must profits be zero in long-run competitive equilibrium?
The short answer: entry of new firms and exit of old ones. If profits are positive, new firms will enter the industry, piling in until they compete away all these profits. If long-term profits are negative, firms will exit until the price rises enough so that the firms who stay in the market can break even.
What is the most important determinant of whether or not firms receive economic profits in the long run?
Customer satisfaction.
Types of profits in the long run in oligopoly?
Supernormal profits due to high barriers to entry. Profits in the long run are determined by the barriers to entry. If there is high barriers to entry, new firms cannot enter the industry easily and hence cannot competed with existing firms for profits. Existing firms would be able to enjoy supernormal profits. On the contrary, weak barriers to entry means that the long run profits would be competed away by new firms entering the industry, hence firms would earn normal profits. Oligopoly market is characterised by high barriers to entry, largely due to non-price competition such as branding, advertising, etc. High barriers could also be due to economies of scale and high fixed cost.
What is the definition of expanding industry?
An industry whose firms earn economic profits and for which an increase in output occurs as new firms enter the industry.
What does Economic profits in an industry suggest that the industry?
Economic profits in an industry suggest that the industry is operating efficiently and that firms within it are earning returns above the normal profit level. This can attract new entrants, leading to increased competition. Over time, as new firms enter, the supply may increase, which can drive prices down and reduce economic profits, moving the industry toward a long-term equilibrium. Ultimately, sustained economic profits may indicate that firms have a competitive advantage or that there are barriers to entry protecting them from competition.
When perfectly competitive firms in an industry are earning positive economic profits, how does this impact market equilibrium and the long-term sustainability of the industry?
When perfectly competitive firms in an industry are earning positive economic profits, it attracts new firms to enter the market, increasing competition. This leads to a decrease in prices and profits until they reach a long-term equilibrium where firms earn normal profits. This process ensures the long-term sustainability of the industry by preventing excessive profits and encouraging efficiency.
Why must profits be zero in long-run competitive equilibrium?
The short answer: entry of new firms and exit of old ones. If profits are positive, new firms will enter the industry, piling in until they compete away all these profits. If long-term profits are negative, firms will exit until the price rises enough so that the firms who stay in the market can break even.
What is the most important determinant of whether or not firms receive economic profits in the long run?
Customer satisfaction.
Types of profits in the long run in oligopoly?
Supernormal profits due to high barriers to entry. Profits in the long run are determined by the barriers to entry. If there is high barriers to entry, new firms cannot enter the industry easily and hence cannot competed with existing firms for profits. Existing firms would be able to enjoy supernormal profits. On the contrary, weak barriers to entry means that the long run profits would be competed away by new firms entering the industry, hence firms would earn normal profits. Oligopoly market is characterised by high barriers to entry, largely due to non-price competition such as branding, advertising, etc. High barriers could also be due to economies of scale and high fixed cost.
What will happen to profits and output levels when variable costs rise in a perfectly competitive industry?
When variable costs rise in a perfectly competitive industry, profits will decrease and output levels may decrease as well. This is because higher variable costs reduce the profit margins for firms, leading to lower overall profits. In response, firms may reduce their output levels to maintain profitability.
What is a purely competitive industry?
Firms are price takers, price is equal to marginal costs, demand is perfectly elastic, i.e. constant and horizontal, the firms makes zero economics profits.
What kind of a profit is earned by perfect competition in the long run?
In the long period, economic profit cannot be sustained. The arrival of new firms or expansion of existing firms (if returns to scale are constant) in the market causes the (horizontal) demand curve of each individual firm to shift downward, bringing down at the same time the price, the average revenue and marginal revenue curve. The final outcome is that, in the long run, the firm will make only normal profit (zero economic profit).
Can a oligopoly earn long run economic profits?
Yes, an oligopoly can earn long-run economic profits due to the market power held by a few dominant firms. These firms typically engage in strategic pricing and may collaborate (explicitly or implicitly) to restrict output and maintain higher prices. Barriers to entry, such as high startup costs and brand loyalty, further protect these firms from new competitors, allowing them to sustain profits over time. However, the level of competition within the oligopoly can influence the extent of these long-term profits.
Why do Firms trying to avoid competition?
Firms try to avoid competition so that they can set higher profits and earn greater profits.
In a perfectly competitive market do firms exhibit productive efficiency?
in the short-run they are not able to but in the longrun it can be attainerd as businesses want to lower their average costs!
