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This model predicts that more firms will enter the industry in the long run, since market price for oligopolists is more stable. [56] The kinked demand curve for a joint profit-maximizing oligopoly industry can model the behaviors of oligopolists' pricing decisions other than that of the price leader.
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 economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. [1]
In the short run, a firm in a perfectly competitive market may gain profits or loss, but in the long run, due to the entry and exit of new firms, price will equal the lowest point of average total cost (ATC). [4]
An oligopoly usually has "economic profit" also, but usually faces an industry/market with more than just one firm (they must share available demand at the market price). Economic profit is much more prevalent in uncompetitive markets such as in a perfect monopoly or oligopoly situation, where few substitutes exit.
Marshall's original introduction of long-run and short-run economics reflected the 'long-period method' that was a common analysis used by classical political economists. However, early in the 1930s, dissatisfaction with a variety of the conclusions of Marshall's original theory led to methods of analysis and introduction of equilibrium notions.
In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which are willing and able to sell at a particular price. This differs from the Bertrand competition model ...
The firm in a perfectly competitive market will operate in two economic time horizons; the short-run and long-run. In the short-run the firm adjusts its quantity produced according to prices and costs. While in the long run the firm is adjusting its methods of production to ensure they produce at a level where marginal cost equals marginal ...