Long-run profits
Definition
Long-run profits refer to the sustained positive economic returns that a firm earns over an extended period of time. It is the result of a firm's ability to maintain a competitive advantage and generate higher revenues than its costs in the long term.
Analogy
Think of long-run profits as winning streaks in sports. Just like how a team consistently wins games over multiple seasons, a firm with long-run profits consistently outperforms its competitors and remains profitable year after year.
Related terms
Market Power: Market power refers to the ability of a firm to influence market conditions, such as prices and output levels, due to its size or unique product offerings.
Economies of Scale: Economies of scale occur when a firm experiences cost advantages as it increases its production scale. This allows the firm to lower average costs per unit and potentially increase long-run profits.
Barriers to Entry: Barriers to entry are obstacles that make it difficult for new firms to enter an industry. These barriers can include high startup costs, government regulations, or strong brand loyalty among existing customers.
"Long-run profits" appears in:
Study guides (3)
Practice Questions (1)
- What is the primary factor that allows imperfectly competitive firms to earn long-run profits?
Resources
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.