Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Firms can earn zero economic profit in the long run
B
All firms in the market earn the same economic profit
C
Economic profits can persist in the long run due to barriers to entry
D
Economic profits are always negative in oligopoly
Understanding the Answer
Let's break down why this is correct
Answer
In an oligopoly market structure, economic profit can be significant because a few large firms dominate the market, allowing them to set prices above their costs. These firms can work together, either openly or secretly, to control supply and keep prices high, which leads to higher profits. For example, if two major car manufacturers agree to limit the number of cars produced, they can raise prices and earn more money than if they were competing fiercely with each other. However, economic profit can also attract new competitors, which might eventually lower prices and profits for everyone. Therefore, while oligopolies can enjoy high economic profits, they must also be cautious of potential new entrants into the market.
Detailed Explanation
In an oligopoly, some companies can keep making profits over time. Other options are incorrect because Some people think all firms must earn zero profit in the long run; It's a common mistake to think all firms earn the same profit.
Key Concepts
Oligopoly
Topic
Economic Profit and Oligopoly
Difficulty
easy level question
Cognitive Level
understand
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