Markets Profits in the Long Run

 A Monopoly market, pursues its pricing policy through maximizing profit, the marginal revenue is equal to marginal cost (MR=MC). It entails of pure monopolist, where single industry exists in the firm through no close substitutes exist. The market has no competitors and that it constitute in determining their own price market.  Single firms assist in the maximization of normal profits through managerial barriers and technological barriers. Monopolist markets incur less marketing and advertising cost, and may incur less than normal profits in the long run at expense of consumer’s economic efficiency

Oligopoly markets have a demand curve that is kinked allowing for price stability and thus strengths its ability to earn supernormal profits in the long run.  High barriers (non-price competition) of entry in oligopolist markets ensure that new firms cannot easily enter the market thus allowing existing firms in oligopoly market to enjoy supernormal profits.

Under Monopolistic competition, new firms are prone to long run profits. Most firms enter the market causing supply increase of products and this leads to shift of demand curve to the left.  Monopolistic demand curve is tangent to profit maximizing curve in level of output. Incentives for new firm’s entry into the market are not needed in monopolistic competition. Due to shift of demand curve, monopolistic markets maintain normal profits.  

Perfect competition firms have no power in the market to regulate and control prices due to homogenous products. Due to less ease in entry and seller being price takers, in the long run, a firm cannot earn any more profits, which it is not necessary in covering up economic costs.

In conclusion, the long run effects and short run differ under different markets. These differences results due to technology, product quality and quantity constraints.

Order now

Related essays