Market power MC companies have some degree of market power, although relatively low. Market power means that the company has control over the terms and conditions of exchange. All MC companies are price makers. An MC companies can raise its prices without losing all its customers. The company can also lower prices without triggering a potentially ruinous price war with competitors. The source of an MC company's market power is not barriers to entry since they are low. Rather, an MC company has market power because it has relatively few competitors, those competitors do not engage in strategic decision making and the companies sells differentiated product. Market power also means that an MC company faces a downward sloping demand curve. In the long run, the demand curve is highly elastic, meaning that it is sensitive to price changes, although it is not completely "flat". In the short run, economic profit is positive, but it approaches zero in the long run.
Market power MC companies have some degree of market power, although relatively low. Market power means that the company has control over the terms and conditions of exchange. All MC companies are price makers. An MC companies can raise its prices without losing all its customers The company can also lower prices without triggering a potentially ruinous price war with competitors. The source of an MC company's market power is not barriers to entry since they are low. Rather, an MC company has market power because it has relatively few competitors, those competitors do not engage in strategic decision making and the companies sells differentiated product. Market power also means that an MC company faces a downwar.d sloping demand curve. In the long run, the demand curve is highly elastic, meaning that it is sensitive to price changes, although it is not completely "flat". In the short run, economic profit is positive, but it approaches zero in the long run.