Why purely competitive firm earn economic profits-long run


Classify each of the following businesses by their characteristics. For parts a. through d., write Pure Competition, Pure Monopoly, Monopolistic Competition or Oligopoly. Answer the questions in parts e. and f.

a. Rick owns a Greek restaurant in a small, rural town. There are four other restaurants in town and five other fast food establishments; however, none of the others sell Greek Cuisine.

b. Katie owns her own research firm. Much by accident she stumbled onto a chemical combination that, when inhaled, cures the common cold in a matter of minutes with no adverse side effects. She has a patent on the new drug.

c. Ted and Chris own the only two gas stations in a 40 mile radius. When Ted lowers his price, Chris quickly follows because his sales start to fall off very quickly. Ted experiences the same result when Chris decides to lower his price.

d. Sophia owns a farm and produces wheat. When she takes her wheat to sell it, she can sell her entire harvest, but she has to accept the going price on the market because there are so many other wheat farmers.

e. In which market structure is there the greatest opportunity for economic profits?

f. In which market structure(s) are there no economic profits in the long run?

g. Let's assume that Monopolistically Competitive firms in a particular industry are earning short-run economic profits. What will happen? What will the end result be?

h. Why won't a purely competitive firm earn economic profits in the long run?

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Microeconomics: Why purely competitive firm earn economic profits-long run
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