In the long run monopolist cana)Incur lossesb)Must earn super normal profitsc)Wants to shut-downd)Earns only normal profitsCorrect answer is option 'B'. Can you explain this answer?

Question

Answer

While a monopolist can maintain supernormal profits in the long run, it doesn’t necessarily make profits. A monopolist can be a loss making or revenue maximizing too. This is not possible under perfect competition. If abnormal profits are available in the long run, other firms will enter the competition with the result abnormal profits will be eliminated.

Answer

Monopolist must earn super  normal profit because he is the only supplier of goods in the market. So customers has to purchase goods on that rate that monopolist has decided. Here monopolist would like to sale goods on high rate that is the cause of earning super profit of monopolist in long run monopoly.

Answer

Monopolist and Super Normal Profits

A monopolist is a single firm that is the sole provider of a particular product or service in the market. As a monopolist, the firm has significant control over the market price and quantity of its product. In the long run, a monopolist can earn super normal profits.

Definition of Super Normal Profits

Super normal profits, also known as economic profits or abnormal profits, refer to the excess profits earned by a firm over and above the normal profits required to cover its opportunity costs. Normal profits are the minimum level of profits necessary to keep the firm in the market, covering all costs, including the opportunity cost of capital.

Market Power and Pricing

As a monopolist, the firm has market power, which allows it to set the price of its product higher than its marginal cost. The marginal cost is the additional cost of producing one more unit of output. By setting the price above marginal cost, the monopolist can maximize its profits.

Barriers to Entry

One of the reasons why a monopolist can earn super normal profits in the long run is the presence of barriers to entry. Barriers to entry restrict the entry of new firms into the market, allowing the monopolist to maintain its market power. These barriers can include high capital requirements, exclusive access to key resources or technology, legal restrictions, or economies of scale.

Lack of Competition

Another reason why a monopolist can earn super normal profits is the absence of competition. Without any competitors, the monopolist has the ability to charge higher prices and earn higher profits. In a competitive market, firms would be forced to lower their prices due to the presence of substitutes and the pressure of competition.

Long Run Equilibrium

In the long run, economic theory suggests that firms in a perfectly competitive market will earn only normal profits. Normal profits are just enough to cover all costs, including the opportunity cost of capital. However, in the case of a monopolist, the absence of competition and the presence of barriers to entry allow the firm to earn super normal profits in the long run.

Conclusion

In conclusion, a monopolist can earn super normal profits in the long run due to its market power and the presence of barriers to entry. The monopolist's ability to set prices above marginal cost and lack of competition allows it to earn excess profits. This is in contrast to firms in perfectly competitive markets, which earn only normal profits in the long run.

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