Figure 13.2

Figure 13.2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.2.What happens to the monopolist represented in the diagram in the long run?
A)It will raise its price at least until it breaks even.
B)If the cost and demand curves remain the same, it will exit the market.
C)The government will subsidize the monopoly to enable it to break even.
D)It will be forced out of business by more efficient producers.

Question

Figure 13.2
  
Figure 13.2 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.2.What happens to the monopolist represented in the diagram in the long run?
A)It will raise its price at least until it breaks even. 
B)If the cost and demand curves remain the same, it will exit the market. 
C)The government will subsidize the monopoly to enable it to break even. 
D)It will be forced out of business by more efficient producers.

Quizplus · Accepted Answer

In the long run, if the monopolist continues to produce at the profit-maximizing level, it will make economic profits. This will attract new firms to enter the market, thereby increasing competition and reducing the monopolist's market share. As a result, the demand curve facing the monopolist will shift downward, reducing the price it can charge. If the cost and demand curves remain the same, the monopolist may eventually find that it can only cover its variable costs and will exit the market in the long run.

Figure 13.2 Figure 13.2 Above Shows the Demand and Cost Curves Facing