Figure 13.3

Figure 13.3 shows the demand and cost curves for a monopolist.
-Refer to Figure 13.3.What is likely to happen to this monopoly in the long run?
A)New firms will enter the market to eliminate its profits.
B)It will expand its output to take advantage of economies of scale so as to further increase its profit.
C)As long as there are entry barriers, this firm will continue to enjoy economic profits.
D)It will be regulated by the government because of its excess profits.

Question

Figure 13.3
  
Figure 13.3 shows the demand and cost curves for a monopolist.
-Refer to Figure 13.3.What is likely to happen to this monopoly in the long run?
A)New firms will enter the market to eliminate its profits. 
B)It will expand its output to take advantage of economies of scale so as to further increase its profit. 
C)As long as there are entry barriers, this firm will continue to enjoy economic profits. 
D)It will be regulated by the government because of its excess profits.

Quizplus · Accepted Answer

The demand and cost curves in Figure 13.3 indicate that the monopolist is earning positive economic profits. As long as there are high barriers to entry preventing other firms from entering the market and competing away those profits, the monopolist can continue to earn those profits in the long run. Option A is incorrect because if new firms were to enter the market, the monopolist would no longer be able to earn those profits. Option B is incorrect because the monopolist is already producing where marginal cost equals marginal revenue, so there is no further opportunity to increase profits through economies of scale. Option D is incorrect because the question does not provide any information suggesting that the government would regulate the monopolist.

Figure 13.3 Figure 13.3 Shows the Demand and Cost Curves for a and Cost