Which of the following is true for a monopoly firm?

Question

BlackTom AI · Accepted Answer

Monopolies can earn economic profit in the long run because barriers to entry prevent rivals from eroding those profits. 1) Relevant knowledge points and concepts - A monopoly is a single seller facing the market (downward‑sloping) demand curve: it is a price maker. - Total revenue TR = P(Q)·Q; marginal revenue MR = dTR/dQ. For a downward‑sloping demand MR < P. - Profit maximization occurs where MR = MC; the monopoly then sets price from the demand curve at that quantity. - Allocative efficiency requires P = MC; monopolies typically set P > MC, causing allocative inefficiency. - Barriers to entry (legal, technical, cost) allow long‑run economic profits for monopolies. 2) Step‑by‑step reasoning - Let demand be linear P = a − bQ. Then TR = P·Q = aQ − bQ^2. - Differentiate: MR = dTR/dQ = a − 2bQ. - Compare MR and P: MR = a − 2bQ and P = a − bQ, so MR = P − bQ < P for any Q > 0. Thus MR is always less than price. - Profit max: set MR = MC to find Q*. Then price P* is read from the demand curve at Q*. Because P* > MC at Q*, P* ≠ MC, so the monopoly is not allocatively efficient and usually charges a price above marginal cost. - Barriers to entry prevent other firms from entering and driving economic profit to zero, so positive economic profit can persist in the long run. 3) Intermediate calculation shown above (derivation of MR for linear demand). 4) Why the correct answer is correct - Option c is correct: because of barriers to entry and price‑making power, a monopoly can sustain economic (positive) profit even in the long run. 5) Why the other options are incorrect - a) Allocative efficiency: false — monopoly sets P > MC, so not allocatively efficient. - b) Profit maximisation at minimum average cost: false — profit maximization is MR = MC, not where ATC is minimized (that applies to long‑run perfect competition). - d) MR more than price: false — as shown, MR < P for a downward‑sloping demand. 6) Conclusion Therefore the correct choice is c. Economic profit is possible in the long run. This matches the provided answer.

Which of the following is true for a monopoly firm?单项选择题

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