Question

Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium?

Answer 1

In the short run, a monopolist will earn a higher economic profit in comparison to competitive firm has. In the long run, both - competitive firm as well as a monopolist are expected to have zero economic profit. The monopolist may take longer to reach the long run because in the long run, all the factors of production are variable including the plant size and a monopolist will maximize profit at the level of output where marginal cost (MC) is equal to marginal revenue (MR) and the LMC curve intersects the MR curve from below.