Which market structure(s) will have zero economic profits in the long run?

Market Structure Review Questions

1. Which market structure(s) will have zero economic profits in the long run?

Perfect Market competition. This is informed by the fact that many sellers are selling the same goods and there are no barriers of entry.

2. Which market structure(s) will be a price maker and have barriers to entry?

Monopoly. Because they have exclusive rights to produce and sell their service

3. 3. There are currently 8 firms in a particular market.

There firm sales are given in the table below. What is the four-firm concentration ratio for this industry? Would you classify it as an oligopoly?

Concentration ratio = 4 largest firms’ sales/ Industry Sales

= (3000+2500+2500+2000)/ (1000+1500+2000+2500+3000+1000+500+2500)*100

= 71%

Since the concentration ratio is more than 60% then the market is oligopoly

4. Although market structures vary widely in their characteristics, what is one common aspect among all of them? Does your previous answer have any potential calculation?

The common aspect of all market structures irrespective of their differences is the fact that they make maximum profit at the point where marginal revenue curve intersects the marginal cost curve. This is found by determined by subtracting the cost per unit from the price per unit.

5. In the long run, which market structures are likely to have their average cost curve just sit on top of their demand curve? What does this imply for each market structure? Are there any differences in the market structures you gave in your previous answer?

A firm in a perfect competition market has the average cost curve resting on top of its demand curve. This means that the firm earn zero economic profits in the long runs and there is no incentive to leave the market.

6. What market structure(s) are likely to cause a net loss to societal welfare?

Monopoly and monopolistic market structures are likely to cause a net loss to society welfare because it seeks to maximize its prices a factor which reduce consumers’ surplus.