Monopoly and oligopoly

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1. Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition?

A perfect competition is characterized by a "large numbers" of small firms-subordinated to the critical task of maximizing production. However, this theory was soon questioned in modern economic theory. Monopolistically competitive markets have many producers and many consumers in a given market e.g. restaurants, and no business has total control over the market price, where consumers perceive that there are non-price differences among the competitors' products. On the other hand, a monopoly would be an industry comprising a single firm, which is the exact opposite of the perfect competition. Furthermore, an oligopoly is a market dominated by a few large suppliers. The degree of market concentration is very high (i.e. a large % of the market is taken up by the leading firms). For example, firms within an oligopoly produce branded products (advertising and marketing is an important feature of competition within such markets) and there are also barriers to entry and an oligopoly is interdependence between firms meaning that each firm must take into account the likely reactions of other firms in the market when making pricing and investment decisions. (http://tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm).

? The extreme case at the opposite end of the scale from perfect competition is monopoly. A pure monopoly would be an industry comprising a single firm, instead of the "large number" of firms which is characteristic of perfect competition. Such a situation could be imagined if a firm were producing a good which was virtually unique, having no good substitutes and if some kind of barriers existed, such as patent rights, which prevented other firms from participating in its production. Similarly, an oligopoly is a market dominated by a few large suppliers (http://www.chass.utoronto.ca/~reak/eco100/100_6.htm).

? Firms can earn profit in the long run in a monopoly and oligopoly. For example, a firm with a monopoly is in a position to influence the market price by deciding how much of the good to ...