Long run and short run economics question.?

Question

Can firms earn economic profits in the short run and long run? examples of each or both?

oh also, when will a firm incur a loss but continue to produce in the short run?

I think it is when profits are below the fixed costs but above the variable costs!

But where would that be on a firm's supply curve?

Answer 1

The answer, it depends.

Under perfect competition you can earn profit in the short run if you innovate. You will have a cost advantage over other firms but they will imitate you, you lose your cost advantage, and the price will once again drop down. So in the long run under perfect competition there can be no profits.

A monopolist will earn an economic profit by reducing output in order to increase the price and earn a profit over its costs. This can happen in the long run if there are barriers to entry, economies of scale which grant the monopolist a cost advantage over firms trying to enter, or when regulation limits the entry of other participants. They can earn a profit in the short and long run.

A firm will continue production in the short run as long as its revenues are greater than its variable costs even if the sunk costs make it that the firm is running a loss. The sunk cost is the y intercept of the supply curve. The slope of the supply curve is the marginal cost of production.

Similar arguments can be made about Oligopolies and even industry wide collusion.