📚 Learning Guide
Economic Profit and Oligopoly
medium

In an oligopoly, if a firm is earning a positive economic profit, it is guaranteed that new competitors will enter the market immediately, driving the profit to zero.

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

True

B

False

Understanding the Answer

Let's break down why this is correct

Answer

In an oligopoly, a few companies dominate the market, and if one of them is making a positive economic profit, it means they are earning more than just covering their costs. This profit attracts new competitors because they want to take advantage of the opportunity to earn money too. However, unlike in perfect competition, new firms may not enter the market immediately due to high barriers like expensive equipment or strong brand loyalty. Over time, if the profit continues, some firms may find a way to enter, which can increase competition. Eventually, this competition can drive profits down to zero, as companies will lower their prices to attract customers.

Detailed Explanation

In an oligopoly, firms can earn profits for a while. Other options are incorrect because This answer suggests that profits will always attract new firms right away.

Key Concepts

Economic Profit
Oligopoly Market Structure
Market Dynamics
Topic

Economic Profit and Oligopoly

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.