Question

If a monopolist in an industry characterized by monopoly features is making economic profit in the short run, which of the following is true for this firm in the long run? (Assume that costs and demand are held constant)
a. The monopolist will be able to sustain economic profits.
b. The monopolist will make normal profit because firms will enter the industry.
c. The monopolist will make normal profit because no firms will enter the industry.
d. The monopolist will make a loss.

Answer 1

Answer: The monopolist will be able to sustain economic profits

Explanation:

If a monopolist in an industry characterized by monopoly features is making economic profit in the short run, then the monopolist will be able to sustain economic profits.

The economic profit is gotten when the explicit cost and the opportunity costs are both deducted from the revenues generated by a business.

Since there is high barrier to entry and the monopoly is the only firm in the market, then the monopolist will be able to sustain economic profits.