Question

1. Long-term economic profits are possible in the Monopoly and Oligopoly market structures due to barriers...

1. Long-term economic profits are possible in the Monopoly and Oligopoly market structures due to barriers of entry. List two examples of different types of barriers

2. Monopolies are economically inefficient. List the consequences of this inefficiency as far as market price and quantity are concern:

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Answer #1
  1. A barrier can be due to a very high fixed cost of installation or government provided licenses or patents. patents prevent other firms from copying monopolist's good, Firms who lack capital and cannot afford high fixed cost cannot enter the market.
  2. monopolies are inefficient because they cannot produce at the minimum average cost in long run. Thus, they can not exploit full economies of scale. Also, their prices are high and output is low. Thus, consumer surplus is less and consumer search for substitutes which decreases profit of monopolies in long run.
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