Introduction: Based on the pricing and output decisions in the short run, firms in Perfect competition, Monopoly, and Monopolistic competition show an ability to earn abnormal profits. However, it is observed that in the long run, these firms are able to earn only normal profits.
Task: Do you agree with the statement above? Are there any market forms in which firms are able to earn abnormal profits, both in the short- and long-runs? How do you determine profits in the short- and long-run periods in different market forms?
Arrange your answer as follows:
Question 1. Explain the process of profit determination in the short- and long-runs.
Question 2. State the conditions under which abnormal profits cannot be earned in a market in the long-runs.
Question 3. State the conditions under which abnormal profits will be earned in a market, both in the short- and long-runs.