Question

Explain why can a monopolist continue to make positive profit even in long run while a perfectly competitive firm can make only zero economic profits in long run.

Answer 1

A distinction was made between short-run and long-run market behavior in the discussion of a perfectly competitive market structure. In the long run, it is assumed that all input factors are variable, enabling companies to enter and exit the market. The result of this business entry and exit was that in the long run, the economic income of each company were reduced to zero.

In a monopolistic market structure, the distinction between the short-run and the long-run is not as important. The existence of high entry barriers prevents firms even in the long run from entering the market. The monopolist can therefore avoid competition and continue to make positive long-run economic profits.