Figure 15-4

Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4.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 15-4
  
Figure 15-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 15-4.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 for the monopolist indicate that it is currently enjoying economic profits. As long as there are entry barriers in the market, it can continue to charge higher prices and earn profits. Therefore, it is unlikely that new firms will enter the market to eliminate its profits. The monopolist may not expand its output to take advantage of economies of scale because it is already producing at the profit-maximizing quantity. The government may not necessarily regulate the firm just because it is earning excess profits.

Figure 15-4 Figure 15-4 Shows the Demand and Cost Curves for a and Cost