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using a fully labelled diagram, discuss the profit maximizing position of a monopoly making economic profit...

using a fully labelled diagram, discuss the profit maximizing position of a monopoly making economic profit in the short run and explain what will happen to this firm in a long run.

My subject is economics

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Answer #1

Monopoly has downward sloping Average revenue (Demand) curve and Marginal revenue curve. This is because monopolist can sell more only if he lowers his price.

The equilibrium quantity is attained where marginal cost equals the marginal revenue. The equilibrium price is given by the point corresponding to this equilibrium quantity.

The colored region shows the profit of the monopolist.

Now, since the monopolist is the only seller in the market and there are no close substitutes of the product, the monopolist can keep on earning supernormal profits even in the long run.

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