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      Question

      Which of the following statements is correct for the

      monopolist?
      A Firm might earn profit in the long run. Correct Answer Incorrect Answer
      B Firm always earns profit. Correct Answer Incorrect Answer
      C Firm charges highest price. Correct Answer Incorrect Answer
      D Firm is more production efficient than the perfectly competitive firm. Correct Answer Incorrect Answer

      Solution

      Due to significant barriers to entry, a monopolist is not threatened by new competitors. Therefore, it can sustain supernormal profits in the long run, unlike firms in perfect competition which earn only normal profits in the long run. It does not “always” earn profit (it could make losses if costs are too high), it does not necessarily charge the “highest possible price” (it charges the profit-maximizing price), and it is generally less production efficient than a perfectly competitive firm due to a lack of competition.

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