Question

True or false? Monopolists differ from perfect competitors because monopolists make a profit. Why?

a/	False. Monopolists earn economic profits in the short run and perfect competitors earn losses in the short run. The distinguishing feature is that a monopolist restricts output to increase price, whereas a perfectly competitive firm cannot influence the price.
b/	False. Monopolists, like perfect competitors, may or may not earn economic profits in the short run. The distinguishing factor is that perfect competitors produce where P > MC.
c/	False. Both monopolists and perfect competitors earn at least normal economic profits in the long run. They will go out of business if they do not. The distinguishing feature is that a monopolist restricts output to increase price, whereas a perfectly competitive firm cannot influence the price.
d/	True. Monopolists can earn economic profits or losses in the long run. In the long run, perfect competitors earn a normal profit. The difference between the two is the profit.

Answer 1

Monopolists can earn economic profits or losses in the long run. In the long run, perfect competitors earn a normal profit. The difference between the two is the profit.

In a perfectly competitive market, there are no barriers to entry or exit.If there are profits in the short-run in a competitive market then firms will be attracted in this market.As a result, the firms will keep entering in this market as long as there are profits.The profits will be reduced until the price is at the minimum of the ATC.All excess profits are absorbed.A monopoly, on the other hand, has high barriers to entry so even if it is earning profits in the short run there will be no firms to enter the market and absorb the excess profits.