Answer to Question #203625 in Microeconomics for Vedika

Question

What happens when a new idea leads to abnromal profit in a monopoly market and how do other firms take advantage of the abnormal profit?

Answer 1

The abnormal profits stimulate new supply which forces prices to go down. This is because the abnormal profits are unsustainable.

The abnormal profits are incentives for other firms to enter the industry so this will be a chance for other firms to enter the market.