Compared to the perfectly competitive firm, a monopoly: will always become competitive in the long run because positive economic profits will induce competitors into the market. produces an equal amount of output, but charges higher prices to cover all costs in the market. O is able to use barriers to entry and maintain positive economic profits in the long run. is efficient from society’s perspective because it has big plants and it uses the newest possible production technology.
The Correct Answer and Explanation is :
The correct answer is:
“is able to use barriers to entry and maintain positive economic profits in the long run.”
Explanation:
A monopoly is a market structure where a single firm controls the entire supply of a product or service, and there are significant barriers preventing other firms from entering the market. These barriers can include high startup costs, control of key resources, government regulation, or strong brand loyalty. Due to the lack of competition, the monopolist has significant pricing power and can set prices higher than in a perfectly competitive market.
In a perfectly competitive market, firms are price takers, meaning they accept the market price determined by supply and demand. In the long run, firms in a competitive market will earn zero economic profit because any positive profit will attract new entrants, increasing supply and driving prices down until only normal profit is earned (where total revenue equals total cost).
On the other hand, a monopoly can maintain positive economic profits in the long run due to the barriers to entry. These barriers protect the monopolist from competition and allow the monopolist to continue earning profits without the threat of new firms entering the market. In the long run, the monopolist may even increase its prices and reduce output, maximizing its profit at the expense of consumer welfare.
While some monopolies may be more efficient in terms of economies of scale or new technology, this doesn’t necessarily make them efficient from a societal perspective. Monopolies often result in allocative inefficiency, where the price is higher than the marginal cost, leading to a loss in consumer surplus and deadweight loss. Therefore, while a monopoly might have “big plants” or use the latest technology, these factors don’t inherently make it efficient from a societal standpoint.
This image will help illustrate the differences in market dynamics between a monopoly and a perfectly competitive market.
Here is the image illustrating the differences between a monopoly and a perfectly competitive market. It shows the unique characteristics of each structure, helping to clarify how monopolies maintain positive profits through barriers to entry, while perfectly competitive markets eventually reach zero economic profit in the long run. Let me know if you need any further explanations or clarifications!
