Why Pure Monopoly can sustain positive economic profit in the long-run and why Pure Monopoly fails...

Why Pure Monopoly can sustain positive economic profit in the long-run and why Pure Monopoly fails to generate either Allocative Efficiency or Economic Efficiency.

Expert Solution

Pure monopoly can sustain positive profits even in long run because monopoly has strong barriers to entry of a firm in the industry.

Due to strong barriers to entry and exit in the long run , new firms cannot enter the industry by getting attracted to short run monopoly profits . Thus no increase in supply and no decrease in price and profits . So firms in monopoly in long run earns positive profits

Pure monopoly fails to generate either allocative efficiency or economic efficiency because firms in long run under monopoly produce at output level where AC is still declining and has not reached minimum point

Where as in perfect competition , firms stops at optimal size where AR = MR =MC and AC is minimum.

In monopoly equilibrium at MR =MC and AR and MR are falling that is not equal to each other and AC is still declining

OQ is output of optimal efficiency while OL is output under monopoly

Rahul Sunny answered 1 year ago

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