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Under which market condition firms make only Normal Profit in the long run?
- a)Oligopoly
- b)Monopoly
- c)Monopolistic competition
- d)Duopoly
Correct answer is option 'C'. Can you explain this answer?
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Under which market condition firms make only Normal Profit in the long...
In the long-run, the demand curve of a firm in a m
onopolistic competitive
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Under which market condition firms make only Normal Profit in the long...
Because in monopolistic competition ,
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Under which market condition firms make only Normal Profit in the long...
Monopolistic Competition
Monopolistic competition is a market condition in which firms make only normal profit in the long run. Here is why:
Large number of firms
- In monopolistic competition, there are a large number of firms competing with each other. This prevents any single firm from exerting significant market power to influence prices.
Product differentiation
- Firms in monopolistic competition differentiate their products through branding, packaging, quality, and other features. This creates a certain degree of market power for each firm, allowing them to charge a price slightly above the marginal cost.
Free entry and exit
- Due to the low barriers to entry and exit in monopolistic competition, firms can easily enter or exit the market in response to profit opportunities. This prevents firms from earning excessive profits in the long run.
Zero economic profit
- In the long run, firms in monopolistic competition earn only normal profit, where total revenue equals total costs. Any excess profits would attract new firms to enter the market, driving down prices and eliminating the profit opportunity.
Overall, in monopolistic competition, firms compete with each other based on product differentiation, but they are unable to sustain long-term economic profits due to the presence of competition and free entry and exit.
Monopolistic competition is a market condition in which firms make only normal profit in the long run. Here is why:
Large number of firms
- In monopolistic competition, there are a large number of firms competing with each other. This prevents any single firm from exerting significant market power to influence prices.
Product differentiation
- Firms in monopolistic competition differentiate their products through branding, packaging, quality, and other features. This creates a certain degree of market power for each firm, allowing them to charge a price slightly above the marginal cost.
Free entry and exit
- Due to the low barriers to entry and exit in monopolistic competition, firms can easily enter or exit the market in response to profit opportunities. This prevents firms from earning excessive profits in the long run.
Zero economic profit
- In the long run, firms in monopolistic competition earn only normal profit, where total revenue equals total costs. Any excess profits would attract new firms to enter the market, driving down prices and eliminating the profit opportunity.
Overall, in monopolistic competition, firms compete with each other based on product differentiation, but they are unable to sustain long-term economic profits due to the presence of competition and free entry and exit.
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Under which market condition firms make only Normal Profit in the long run?a)Oligopolyb)Monopolyc)Monopolistic competitiond)DuopolyCorrect answer is option 'C'. Can you explain this answer?
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