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Difficulty: EasyMonopoly: Short-Run and Long-Run Price and Output Determination

In long-run equilibrium, a profit-maximizing monopolist can sustain supernormal profits primarily because high barriers to entry prevent new firms from entering the market.

Answer: Answer

Answer

True. A monopolist can sustain supernormal profits in the long run because entry barriers prevent new firms from entering the market.
In monopoly markets, high barriers to entry prevent new competing firms from entering the industry when supernormal profits exist. This structural protection enables the single seller to maintain economic profits in both the short run and the long run.

Step-by-Step Solution

1
Analyze the long-run feature of a monopoly market.
Monopolies are characterized by strong barriers to entry (e.g., legal protections, economies of scale, control of key resources).
Entry barriers dictate whether supernormal profits will attract new supply into the market.
2
Compare long-run outcome in monopoly with competitive markets.
Unlike perfect competition where free entry drives long-run profit to zero (normal profit), monopoly entry barriers preserve long-run supernormal profit.
Because no new firms can enter to expand market supply, the price remains above average total cost at the profit-maximizing output level where marginal revenue equals marginal cost.

Key Concept

Long-Run Monopoly Equilibrium and Barriers to Entry
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Topics

Monopoly: Short-Run and Long-Run Price and Output Determination

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