Question

Discuss the short run and long run condition of both a monopoly and a perfect competition market structure .in words

Answer 1

Perfect competition:- In the short run, it is possible for any firm to make economic profit. Economic profit occurs when the price that the firm is charging for its products is greater than the average total cost, whereas the firm is making a loss in the market when the price is lower than the average total cost. When the firms are earning economic profits in the short run, it induces new firms to enter into the market to get a slice of the profits. In the long run, as the new firms keep entering, the economic profits turn to zero and the market is in equilibrium. Thus, in the perfect competition there is always equilibrium in the market in the long run.

Monopoly:- In the short run, the profit maximization of a monopoly firm takes place when they produce that quantity of output at which marginal revenue = marginal cost. Economic profits occur when market price is greater than average total cost and economic losses occur when market price is below average total cost. For a monopoly all the factors of production required by the plant is variable. A monopoly will maximize the profits at that point at which its long run marginal cost curve is equal to its marginal revenue and where long run marginal cost curve cuts the marginal revenue curve from below.

Thus, we see that the short and the long run conditions in both the markets are different.