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In economics, profit is the difference between revenue that an economic entity has received from its ... and determined whether or not the monopoly should be able ...
In economics, profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that will lead to the highest possible total profit (or just profit in short). In neoclassical economics, which is currently the mainstream approach to microeconomics, the firm is assumed to be a "rational ...
Accepted neo-classical micro-economic theory indicates the American accounting and finance definition of markup, as it exists in most competitive markets, ensures an accounting profit that is just enough to solely compensate the equity owners of a competitive firm within a competitive market for the economic cost (opportunity cost) they must ...
A monopolist can set a price in excess of costs, making an economic profit. The above diagram shows a monopolist (only one firm in the market) that obtains a (monopoly) economic profit. An oligopoly usually has economic profit also, but operates in a market with more than just one firm (they must share available demand at the market price).
In Value, Price and Profit (1865), Karl Marx quotes Adam Smith: It suffices to say that if supply and demand equilibrate each other, the market prices of commodities will correspond with their natural prices, that is to say, with their values as determined by the respective quantities of labor required for their production. [16]
In the short term, firms are able to obtain economic profits as a result of differentiated goods providing sellers with some degree of market power; however, profits approaches zero as more competitive toughness increases in the industry. [17] The main characteristics of monopolistic competition include: Differentiated products; Many sellers ...
Mathematically, the markup rule can be derived for a firm with price-setting power by maximizing the following expression for profit: = () where Q = quantity sold, P(Q) = inverse demand function, and thereby the price at which Q can be sold given the existing demand C(Q) = total cost of producing Q.
The profit rate earned in that sector is the same as the profit rate earned across the whole economy, and it is stated that the conditions of equilibrium will prevail. Therefore, according to this specific approach, supply and demand changes only explain are indicative of the deviation that occur of "market" from "natural" prices.