Long run profits made by Firms under monopolistic competition and perfect competition are same or different?

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Long run profits made by Firms under monopolistic competition and perfect competition are same or different?

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Direction: Read the following passage and answer the questions that follows:The biggest reason why oligopolies exist is collaboration. Firms see more economic benefits in collaborating on a specific price than in trying to compete with their competitors. By controlling prices, oligopolies are able to raise their barriers to entry and protect themselves from new potential entrants into the market. This is quite important, as new firms may offer much lower prices and thus jeopardize the longevity of the colluding firms’ profits.In most markets, antitrust laws exist that aim to prevent price collusion and protect consumers. Nonetheless, firms have devised ways to achieve price collusion without being detected by regulators. For example, firms might elect a price leader that is tasked with leading changes in prices before other firms follow suit in order to “react to competition”. Firms may also agree to change their prices on specific dates; in such cases, the changes may be seen as merely a reaction to economic conditions such as fluctuations in inflation.How do oligopolies work?It is important to note that in real-life oligopolies, the games (instances of collusion) are sequential; meaning that one firm’s behaviour in one game may influence the game’s outcome in future periods. In this scenario, we see that the optimal outcome that generates the most cumulative profits occurs if both firms collude. This situation would be the best long-run equilibrium situation that would provide the most benefit to all the firms.Nonetheless, in this equilibrium, firms have an incentive to cheat and not collude. For example, if both firms agree to set a price of $10, but Firm A cheats and sets prices at $5, Firm A will essentially capture the entire market (assuming little to no differentiation). While this may result in high profits for Firm A in this game, Firm B now knows that Firm A is a cheater and thus will never collude again.Therefore, the new equilibrium would be the one where neither firm collude and achieve profits that would occur under perfect competition (which is significantly less profitable than colluding). Thus, to realize the best long-run profits, firms in an oligopoly choose to collude.Q. Why do firms agree to collude?

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Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors.

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Explain why a firm under perfect competition cannot earn abnormal profit in the long run?

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Under which of the following forms of market structure a firm has no control over the price of its product?

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Why is the level of output under monopoly always less than perfect competition even when a monopolist can earn extra normal profits ?

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Long run profits made by Firms under monopolistic competition and perfect competition are same or different? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Long run profits made by Firms under monopolistic competition and perfect competition are same or different? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Long run profits made by Firms under monopolistic competition and perfect competition are same or different?.

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