by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Monopolistic Competition Affect Efficiency? The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the average cost curve. This outcome is why perfect...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Oligopolists face a Prisoner’s Dilemma? The members of an oligopoly can face a prisoner’s dilemma, also. If each of the oligopolists cooperates in holding down output, then high monopoly profits are possible. Each oligopolist, however, must worry that...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What Guides Decisions to Enter or Exit a Market in the Long Run? It is impossible to precisely define the line between the short run and the long run with a stopwatch, or even with a calendar. It varies according to the specific business. Therefore, the distinction...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Long-Run Equilibrium in a Perfectly Competitive Market? No perfectly competitive firm acting alone can affect the market price. However, the combination of many firms entering or exiting the market will affect overall supply in the market. In turn, a shift...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Productive and Allocative Efficiency in Perfectly Competitive Markets? When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, something remarkable happens: the resulting quantities of outputs of goods and...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Natural Monopoly? Economies of scale can combine with the size of the market to limit competition. This arises when the market has room for only one producer. If a second firm attempts to enter the market at a smaller size then its average costs will be...
