Answer to Question #298548 in Microeconomics for garg

Question

Show the profit maximizing condition of a monopolist. Does the monopolist always earn

super normal profit in the short run? Explain using an appropriate diagram

Answer 1

The diagram for a monopoly is generally considered to be the same in the short run as well as the long run.

Profit maximization occurs where MR=MC.

From the below diagram, the equilibrium is at $Q_m, P_m$ . (point M)

This diagram shows how a monopoly is able to make super normal profits because the price (AR) is greater than AC.

Usually, super normal profit attracts new firms to enter the market, but there are barriers to entry in monopoly, and this enables the monopoly to keep super normal profits.