Answer to Question #183214 in Microeconomics for glory

Question

Show what happens to a monopoly firm operating in the long-run?

Answer 1

Barriers to entry exist in monopolies, preventing new companies from entering the market. In the long run profits and prices will remain high in a monopoly firm. A monopoly firm has the opportunity to grow its plant or use its current plant to whatever degree that maximizes its profit. With entry barred, however, the monopolist does not need to achieve an optimum scale. There's still no assurance that the firm will use its current plant to its optimum capacity. What is clear is that if the monopoly firm makes losses in the long run, it will go out of business. The firm's size and degree of utilization, on the other hand, are entirely dependent on market demand. In the case where the size of the market is so large to the monopoly firm, a larger plant than the optimal must be built and overutilized in order to maximize the firm's output. Since it is larger than the optimum size and is overutilized, the plant that maximizes the firm's income has higher costs. There is no guarantee that the monopolist can reach the optimal scale in the long run. There are no market forces in monopoly that cause companies to operate at optimal plant sizes and use them at maximum capacity in the long run.