question archive A profit-maximizing price searcher will expand output as long as marginal revenue either exceeds or is equal to marginal cost, lowering its price or raising its price until the midpoint of their demand curve and highest total revenues are achieved
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A profit-maximizing price searcher will expand output as long as marginal revenue either exceeds or is equal to marginal cost, lowering its price or raising its price until the midpoint of their demand curve and highest total revenues are achieved. Why are oligopolies able to earn both short-run economic profits and long-run economic profits, while price-taking firms like perfect competitors can only earn short-run economic profits? Review the characteristics of perfect competition and imperfect competition (monopolistic competition, oligopoly, and monopoly).
The reason that oligopolies are able to enjoy short and long-run profits is that there is a lack of competition in their market which is a result of a large number of barriers to entry. With a few firms in the market, profits can be shared. This happens when the firms look to collude rather than engage in price wars which can indeed wipe out profits.
On the other hand, there no barriers to entry in perfect competition. In the short-run, supply is low due to which prices are high which means that profits can be enjoyed. In the long-run, however, more firms enter increasing the supply. This increased supply causes prices to come down which makes the profit of all firms zero.