To be able to engage in profit-maximizing price searching, a monopoly firm must be able to
A) prevent the entry of other firms into the market for its product.
B) induce the entry of other firms into the market for its product.
C) avoid earning negative economic profits in the short run.
D) always earn zero economic profits.

Question

Quizplus · Accepted Answer

In order for a monopoly firm to engage in profit-maximizing price searching, it must prevent the entry of other firms into the market for its product. If other firms can enter the market, they will compete away the monopoly firm's profits, limiting its ability to set prices above marginal cost. Therefore, the ability to prevent entry into the market is necessary for a monopoly to engage in profit-maximizing price searching.

To Be Able to Engage in Profit-Maximizing Price Searching, a Monopoly