Question

the principal difference between economic profits for a monopolist and for a competitive firm is that: a. monopoly profits create major problems of equity whereas competitive profits do not. b. competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well. c. monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not. 3 d. monopoly profits are usually larger than competitive profits

Answer 1

The key difference between a monopolist's and a competitive firm's economic profits lies in the persistence of monopoly profits in the long run, made possible by barriers to entry which prevent other firms from entering the market and driving profits to zero.

Step-by-step explanation:

The principal difference between economic profits for a monopolist and for a competitive firm is that competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well. In a competitive market, the entry and exit of firms drive the markets towards a zero economic profit outcome in the long run. However, due to high barriers to entry in monopoly markets, monopolists can maintain economic profits in the long run.

Unlike a monopoly that maintains unique control over its product or service, monopolistic competition describes a market structure where many firms sell products that are similar but not identical, leading to each firm holding a sort of mini-monopoly over its specific product. The presence of monopolistic competition encourages product diversity and innovation, although it is less efficient than perfect competition due to prices exceeding marginal costs and firms operating with excess capacity.