Figure 10-4
Figure 10-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 10-4.What is likely to happen to this monopoly in the long run if costs and demand stay the same?
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 10-4
  Figure 10-4 shows the demand and cost curves for a monopolist.
-Refer to Figure 10-4.What is likely to happen to this monopoly in the long run if costs and demand stay the same?
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

As long as there are entry barriers, this firm will continue to enjoy economic profits, as shown by the gap between the demand and average cost curves, indicating a monopolistic market structure. With no threat of competition, the monopolist can continue to charge higher prices and maintain their profits.

Figure 10-4 Figure 10-4 Shows the Demand and Cost Curves