question archive Why can an oligopolist and a monopolist earn excess profit over the long-run when a pure competitor and monopolistic competitor cannot?
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Why can an oligopolist and a monopolist earn excess profit over the long-run when a pure competitor and monopolistic competitor cannot?
In the long run, perfect competition is able to only earn normal profits, whereas monopolies and oligopolies can earn excess profits. Monopolies and oligopolies are price makers. They set the price of goods and services. Perfect competition companies are price takers. They sell at the prices established through demand. Also, by their nature, monopolies and oligopolies do not have substitute products which would allow consumers to buy these substitutes. Coupled with the lack of competition, it is clear why they are able to make excess profits.