LONG RUN EQUILIBRIUM OF MONOPOLIST
In long-run equilibrium, a monopolist maximizes profits by producing
(MC) equals marginal revenue (MR). This equilibrium differs from per
where firms produce where price equals MC, leading to a monopolist c
and producing a lower quantity than in a perfectly competitive market.
long-run equilibrium is characterized by a positive economic profit bec
prevent new firms from entering and competing away the profit.
Explanation:
Profit Maximization:
Monopolists, like all firms, aim to maximize profits. In the long run, th
factors of production, including plant size, to achieve the most profitab
MC = MR:
The fundamental principle of profit maximization is that a firm should
cost of producing one more unit (MC) is equal to the revenue gained fr
(MR).
Downward-Sloping Demand Curve:
Monopolists face a downward-sloping demand curve, meaning they mu
sell more output. This leads to MR being less than the price, as the mo
lower the price on all previously sold units to sell one more unit.
Entry Barriers:
Monopolies have protected market positions due to barriers to entry, su
protections, high capital costs, or control over essential resources. This
continue to earn economic profits in the long run.
Inefficiency:
Unlike perfectly competitive markets where price equals marginal cost
long-run equilibrium involves a price higher than marginal cost and ou
would be produced under perfect competition. This results in a welfare
loss) for society, as some potential gains from trade are not realized.
Surpass Optimal Scale Equilibrium:
In the long run, a monopoly firm might be in equilibrium at a point wh
the rising part of its long-run average cost curve (LAC), meaning it is n
most efficient scale. This can lead to higher costs and potentially lower
operate at the minimum point of its LAC.
In essence, a monopolist's long-run equilibrium is characterized by:
Maximizing profits by producing where MC = MR.
In long-run equilibrium, a monopolist maximizes profits by producing
(MC) equals marginal revenue (MR). This equilibrium differs from per
where firms produce where price equals MC, leading to a monopolist c
and producing a lower quantity than in a perfectly competitive market.
long-run equilibrium is characterized by a positive economic profit bec
prevent new firms from entering and competing away the profit.
Explanation:
Profit Maximization:
Monopolists, like all firms, aim to maximize profits. In the long run, th
factors of production, including plant size, to achieve the most profitab
MC = MR:
The fundamental principle of profit maximization is that a firm should
cost of producing one more unit (MC) is equal to the revenue gained fr
(MR).
Downward-Sloping Demand Curve:
Monopolists face a downward-sloping demand curve, meaning they mu
sell more output. This leads to MR being less than the price, as the mo
lower the price on all previously sold units to sell one more unit.
Entry Barriers:
Monopolies have protected market positions due to barriers to entry, su
protections, high capital costs, or control over essential resources. This
continue to earn economic profits in the long run.
Inefficiency:
Unlike perfectly competitive markets where price equals marginal cost
long-run equilibrium involves a price higher than marginal cost and ou
would be produced under perfect competition. This results in a welfare
loss) for society, as some potential gains from trade are not realized.
Surpass Optimal Scale Equilibrium:
In the long run, a monopoly firm might be in equilibrium at a point wh
the rising part of its long-run average cost curve (LAC), meaning it is n
most efficient scale. This can lead to higher costs and potentially lower
operate at the minimum point of its LAC.
In essence, a monopolist's long-run equilibrium is characterized by:
Maximizing profits by producing where MC = MR.
