Editing Perfect competition (section)

=== In non-competitive markets ===
[[File:Imperfect competition in the short run.svg|thumb|right|A monopolist can set a price in excess of costs, making an economic profit.  The above diagram shows a monopolist (only one firm in the market) that obtains a [[monopoly profit|(monopoly) economic profit]].  An oligopoly usually has economic profit also, but operates in a market with more than just one firm (they must ''share'' available demand at the market price). ]]
Economic profit is, however, much more prevalent in uncompetitive markets such as in a perfect [[monopoly]] or [[oligopoly]] situation. In these scenarios, individual firms have some element of market power: Though monopolists are constrained by [[Demand (economics)|consumer demand]], they are not price takers, but instead either price-setters or quantity setters. This allows the firm to set a price that is higher than that which would be found in a similar but more competitive industry, allowing them economic profit in both the long and short run.<ref name="Essentials" /><ref name="MicroTheory" />

The existence of economic profits depends on the prevalence of [[Barrier to entry|barriers to entry]]: these stop other firms from entering into the industry and sapping away profits,<ref name="IndustrialOrg">Tirole, 1988.</ref> as they would in a more competitive market. In cases where barriers are present, but more than one firm, firms can collude to limit production, thereby restricting supply in order to ensure that the price of the product remains high enough for all firms in the industry to achieve an economic profit.<ref name="Essentials" /><ref name="IndustrialOrg" /><ref name="EconDictionary">Black, 2003.</ref>

However, some economists, for instance [[Steve Keen]], a professor at the University of Western Sydney, argue that even an infinitesimal amount of market power can allow a firm to produce a profit and that the absence of economic profit in an industry, or even merely that some production occurs at a loss, in and of itself constitutes a barrier to entry.

In a single-goods case, a positive economic profit happens when the firm's average cost is less than the price of the product or service at the [[profit maximization|profit-maximizing]] output. The economic profit is equal to the quantity of output multiplied by the difference between the average cost and the price.