Describe the difference in economic profit between a competi

Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium?

In the short run, both monopolists and competitive firms ______(Can/Cannot) earn positive economic profits. In the long run,__________(neither/monopolists, but not competitive/both/ competitive but not monopolists) can earn a positive economic profit.

True or False: The adjustment to long-run equilibrium takes the same amount of time for monopolies and competitive industries.

Solution

In the short run, both monopolists and competitive firms can (Can/Cannot) earn positive economic profits. In the long run,monopoly can earn positive economic profit but not in perfect competition (neither/monopolists, but not competitive/both/ competitive but not monopolists) can earn a positive economic profit.

Explanation:

In monopoly, the price is above MC. This gives the monopolist positive profits. In perfect competiton, if the price is above ATC, then the firm will enjoy positive economic profit.

In the long run, the monopoly continues to enjoy economic profit when the long run marginal cost is equal to marginal revenue.

In the long run, in perfect competition if there is economic profit then new firms will be attracted and price will equal ATC (price = long run average cost). There will be no positive economic profit but only normal profit.

True or False: The adjustment to long-run equilibrium takes the same amount of time for monopolies and competitive industries. False.

If in perfect competition, firms are making positive economic profit then new firms will be attracted and supplycurve shifts to the right. The market moves towards equilibrium in the long run.

A monopolist can create barriers to entry and prevent new firms from entering the market.