How does a business's profit trajectory differ across various market structures?

A business's profit trajectory varies across different market structures due to differences in competition, pricing power, and barriers to entry.

In a perfectly competitive market, businesses are price takers, meaning they have no control over the price of their product. This is because there are many firms selling identical products, so if one firm tries to increase its price, consumers will simply buy from another firm. As a result, in the long run, firms in a perfectly competitive market can only make normal profits (where total revenue equals total cost). If firms start making supernormal profits (where total revenue exceeds total cost), new firms will be attracted to the market by the prospect of high profits, increasing supply and driving down prices until only normal profits are made.

In a monopolistic competition, firms sell differentiated products, giving them some control over their prices. However, because there are many firms and easy entry and exit, any supernormal profits will be eroded in the long run as new firms enter the market. The difference with perfect competition is that firms can make short-run supernormal profits and will have some control over their price due to product differentiation.

In an oligopoly, a few large firms dominate the market. These firms have significant control over their prices, but their pricing decisions are interdependent - a change in price by one firm will likely result in a change in price by its competitors. Firms in an oligopoly can make supernormal profits in both the short and long run due to high barriers to entry, such as high start-up costs or strong brand loyalty.

In a monopoly, one firm controls the entire market. This firm has significant pricing power and can make supernormal profits in both the short and long run. The ability to maintain these profits is due to high barriers to entry, such as ownership of a key resource, government regulation, or economies of scale.

In conclusion, a business's profit trajectory is largely determined by the level of competition, pricing power, and barriers to entry in its market. Perfectly competitive markets tend to result in normal profits in the long run, while monopolistic competition allows for short-run supernormal profits. Oligopolies and monopolies, on the other hand, can sustain supernormal profits in the long run due to high barriers to entry.