Answer to Question #206367 in Macroeconomics for Mersha

Question

Do monopoly firms get a normal profit or supernormal profit in the shortrun? Why?

Answer 1

A monopoly is a market arrangement in which a single vendor is also the only owner of the company. As a result, a monopolistic business can make a supernormal profit in the long run and the short-run since the seller has control over the product's pricing to be fixed, and new businesses' entry is also limited.

Companies in competitive marketplaces and monopolies may be able to achieve extraordinary profits. There is, however, one significant distinction. In competitive marketplaces, entry barriers are low, allowing new enterprises to enter the market and reducing profit margins.

On the other hand, barriers to entry shield monopolies from the competition, resulting in high levels of supernormal earnings. As a result, the supply curve of the monopolist is to the right of the industry's supply curve. In the long term, this results in lower prices and increased output.