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11 votes

Why companies choose to make zero economic profits in the long-term when it can maximize it instead? Why does Apple have large profit margins?

Why companies choose to make zero economic profits in the long-term when it can maximize it instead? Companies do not choose to make zero economic profits. In economics we start with assumption that ...
1muflon1's user avatar
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11 votes
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Why companies choose to make zero economic profits in the long-term when it can maximize it instead? Why does Apple have large profit margins?

I read that companies in the monopolistic competition make zero economic profit in the long term. Why would a company do that when it can maximize the profit instead? Please give sources when you ...
Giskard's user avatar
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4 votes
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Log-Linearizing a Dixit-Stiglitz function

Thanks for the hint and the link! I think I now managed to find the solution. Putting the exponent on the LHS and replacing $C_t^{1-\gamma}$ with $C+(1-\gamma) C^{1-\gamma}C \tilde{c}$ and $C_t(...
Chris tie's user avatar
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Why does demand curve shift in, in a monopolistic competitive market?

Demand for existing firms' product shifts in because the entering firms attract some of the users.
dimitriy's user avatar
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4 votes

The Price and Demand Index in Homothetic Kimball Utility

The problem is the following: $$ \begin{align*} \max_{Q, q_\omega} Q \text{ s.t. } &\int Y\left(q_\omega/Q\right) d\omega = 1,\\ &\int p_\omega q_\omega d\omega = y \end{align*} $$ The first ...
tdm's user avatar
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3 votes
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Derivation of aggregate demand function for Monopolistic Competition (based on Combes et. al, 2008)

As we have discussed in the comments, the utility function used in the book is Cobb-Douglas: $U = CM^{\mu}A^{1 - \mu}$. The well known fact mentioned in equation (3.3) on page 57 - the one that you ...
Grada Gukovic's user avatar
2 votes

Free market defense against anti-competitive behavior?

Depends on what you mean by 'possible'. The liquor stores in your example could form a union, and collectively bargain with brands. Then if a brand breaks a contract with one of them, they all break ...
Giskard's user avatar
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2 votes

Concentration Measures

Unfortunately, I'm not sure there's a clear answer to your question, since it so often depends on what the specific needs are for the specific project. Overall, there are a number of different ways to ...
AndrewC's user avatar
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2 votes

Have countries with a monopoly on a resource in an area ever established 1-company monopolies in that area to drive up price?

Yes, you are describing the (British) East India Company. A royal charter granted it a 15 year monopoly on English trade with "all countries east of the Cape of Good Hope and west of the Straits of ...
Dan's user avatar
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2 votes
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Constant MC - Monopolstic Competition

It is possible for firms to have constant marginal costs in monopolistic competition in theory. Nevertheless, they must also have fixed costs. The fixed costs prevent firms from entering in sufficient ...
BB King's user avatar
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1 vote

What is max here, and how did they derive the first order condition from it?

$max_p f(p)$ just means the maximal value of expression of $f(p)$ with regards to $p$ (meaning the value of $f(p)$ is checked over the whole range of $p$'s possible values). In your case it does ...
Giskard's user avatar
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1 vote

how does monopolisitic competition make profit in the long run in reality

First of all KFC and similar large fast food chain are not a good example of monopolistic firm, at least not in most countries they are more closely related to oligopoly. The reason for that is that ...
1muflon1's user avatar
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1 vote

Monopolistic competition

so the UMP with CES preferences, $L$ goods produced each by a different firm and weights normalized to 1 is: \begin{align} \max_{x_l} \left[\sum_{l = 1}^{L} x_l^{\frac{\sigma - 1}{\sigma}}\right]^\...
Matteo Bulgarelli's user avatar
1 vote
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Will there always be excess profit in the Cournot model equilibrium/monopoly

If the AC curve is assumed convex and demand is assumed linear, as in the figure, then an AC curve tangent to the demand line means that AC > P at all quantities but one (where AC = P). Thus the ...
VARulle's user avatar
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1 vote

Derive and Decompose The Aggregate Elasticity of Substitution in CES Economy

I'm the one who asked the original question in another thread, but unfortunately, my narration is very unclear and hence the original one has been closed but I'm glad that there is a new question ...
Brandon Li's user avatar
1 vote
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demand curve shift in a monopolistic competitive market

But my question is, will the slope of the demand curve change as it moves leftward? The slope does not change because one assumes that relative prices and consumer preferences do not change. This is a ...
Levittstyle's user avatar
1 vote
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What happens to consumer surplus and profits as firms get more information in Hotelling's duopoly model?

The article Quality of Information and Oligopolistic Price Discrimination by Liu and Serfes covers this topic in great detail. It also has a rather nice literature review.
Giskard's user avatar
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1 vote

Market behavior when consumer must choose product before knowing price?

Yes, we can model this as a choice under uncertainty, where the distribution is over the set of prices the consumer may face. The consumer could have an expected budget with expected demands and you ...
VCG's user avatar
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1 vote

Is the global Automobile Industry changing from an oligopoly to monopolistic competition?

The automotive industry is being disrupted by new trends such as electric vehicles and self-driving cars. These, still, represent a minor part of the market. So the answer would be no, for the ...
JoaoBotelho's user avatar
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1 vote

Free market defense against anti-competitive behavior?

There really is not one. Even things like unions, water, fire or homeowners' associations are really special purpose governments. They derive their powers from the governmental body that delegates ...
Dave Harris's user avatar
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1 vote

Monopoly and competitive output levels

The monopolist will restrict output to be able to charge a higher price. It is true that if the monopolist reduced the price, it could sell more units, but the benefit of selling more units is more ...
M3RS's user avatar
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1 vote

Are market structures on a spectrum?

If there were such a spectrum, it would not be one dimensional. For instance, we could compare the competitiveness of markets with homogeneous products in terms of the number of firms in that market, ...
Herr K.'s user avatar
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1 vote

Would you consider airport parking to be a monopoly or a monopolistic market?

This depends on how you define the good in question, which is a typical problem when talking about market structure. If the good is "parking at the airport " then it's probably a monopoly since most ...
Hessian's user avatar
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1 vote

Would you consider airport parking to be a monopoly or a monopolistic market?

If there are different companies offering with different prices, but not so many companies that it is perfect competition, then it is monopolistic and not a monopoly.
BB King's user avatar
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