Is a monopolist guaranteed to make a profit?
D) the monopolist is guaranteed to make an economic profit. The monopolist’s profit-maximizing level of output is found by equating its marginal revenue to its marginal cost, which is the same profit-maximizing condition that a perfectly competitive firm uses to determine its equilibrium output level.
Do monopolies always make long-term profits?
Monopolies can maintain super normal profits over the long term. As with all businesses, profits are maximized when MC = MR. In general, the level of profit depends on the degree of competition in the market, which for a pure monopoly is zero.
What is the real power of a monopoly?
Monopoly power requires that the firm be able to profitably charge prices high enough to earn a supernormal return on its investment. It is unclear by how much price must exceed marginal cost in the short run before there is monopoly power.
Does pure monopoly exist in the real world?
As such, there are no pure monopolies in the real world. Monopolistic market structures can be viewed in two ways. One is an abstract, theoretical model of a market containing a single seller. The other is a realistic market in which one firm more or less dominates the market.
What happens to long-term profits?
The existence of economic profits in a particular industry attracts new businesses to the industry in the long run. As new companies enter, the supply curve shifts to the right, prices fall and profits fall. Companies keep entering the industry until the economic profits drop to zero.
When does a company have a monopoly?
When a single firm controls an entire industry – or even a large percentage of that industry – the firm is said to have a monopoly. Traditionally, monopolies benefit the companies that hold them, as they can raise prices and cut services without consequence.
What is a good example of a monopoly?
A monopoly is a company that is the sole seller of its product and where there are no close substitutes. An unregulated monopoly has market power and can influence prices. Examples: Microsoft and Windows, DeBeers and Diamonds, your local natural gas company.
Is Google a pure monopoly?
Google (GOOG) has become a monopoly in Internet search, but apart from this segment, it is not a monopoly. Using Google to browse the web remains the preferred method by which most people find information online. However, Google is far from a monopoly on the full range of Internet services.
Why do monopolies often generate no economic profit?
For example, a movie theater or miniature golf course may enjoy a monopoly in an area because zoning regulations prevent competitors from entering. Or, in less developed countries, a single company may be granted the exclusive right to sell or produce a particular good. In all these cases, the monopoly is left free to set its price as it sees fit.
How does a short-term monopoly work?
Usually, the supernormal profit attracts new companies to enter the market, but there are barriers to entry into the monopoly, which allows the monopoly to retain supernormal profits. In the short term, firms in competitive markets and monopolies could make supernormal profits.
What are the advantages and disadvantages of a monopoly?
In a competitive market, firms can produce quantity Q2 and have average costs of AC2. A monopoly can produce more and have lower average costs. This allows for scale efficiency. Monopoly – pros and cons.
Why are monopoly prices higher than MC prices?
Therefore, in the long run in competitive markets, prices will fall and profits will fall. However, in the long run, monopoly prices and profits can remain high. Monopolies set a price above MC, which is allocatively inefficient. With less competition, a monopoly has less incentive to reduce costs and will therefore be x-inefficient.