A monopolist can make an economic profit in the long run because of
A) the firm's price setting behaviour.
B) the fact that the firm produces where MR = MC.
C) the relatively inelastic demand for its product.
D) the relatively elastic demand for its product.
E) barriers to entry.

Question

Quizplus · Accepted Answer

Barriers to entry prevent competitors from entering the market and capturing some of the monopolist's profits. This allows the monopolist to continue to earn economic profits in the long run. Choice A is not sufficient to explain long-run profits as the firm's price-setting behavior must be coupled with barriers to entry. Choices B and D are necessary conditions for a profit-maximizing monopolist, but they do not explain the source of long-run profits. Choice C is incorrect because relatively inelastic demand would increase total revenue but would not necessarily result in economic profits in the long run.

A Monopolist Can Make an Economic Profit in the Long