Monopoly: A Market Structure that Facilitates Super Normal Profits

Monopoly is a market structure in which a single firm produces and sells a unique product that has no close substitutes. Due to the absence of close substitutes, the monopolist has a considerable degree of market power, which allows it to make super normal profits in the long run.

Barriers to Entry

One of the defining features of a monopoly is that it has significant barriers to entry that prevent new firms from entering the market. These barriers may be natural, legal, or strategic, and they enable the monopolist to maintain its market power and earn super normal profits in the long run.

Natural barriers to entry may arise from economies of scale, which allow the monopolist to produce at a lower cost than any potential entrant. Legal barriers to entry may include patents, copyrights, and regulatory licenses that prevent competitors from selling the same product. Strategic barriers to entry may involve the monopolist engaging in predatory pricing or other anti-competitive practices to discourage new entrants.

Pricing Power

Monopolies also have significant pricing power, which means that they can charge higher prices for their products than would be possible in a more competitive market. This is because the monopolist does not have to worry about competitors undercutting its prices, as there are no close substitutes for its product.

As a result, the monopolist can set its price at a level that maximizes its profits, even if this means charging a higher price than would be possible in a more competitive market. This enables the monopolist to earn super normal profits in the long run.

Conclusion

In conclusion, a firm can earn super normal profits in the long run under a monopoly market structure. This is because monopolies have significant barriers to entry that prevent competitors from entering the market, as well as pricing power that allows them to charge higher prices than would be possible in a more competitive market.

In Monopoly competition, there is only one seller and huge number of buyers due to which there remains no competition for the seller and substitutes for the buyers. Due to this reason seller can practice price discrimination whenever they want to earn super normal profits. Therefore, options D is the correct answer.