What enables a monopoly to sustain economic profits over the long term?
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Answer: A. there is some barrier to entry to that market
Explanation
Barriers to entry prevent new rival firms from entering the profitable market. Monopolies maintain their market power by restricting competition through various protective mechanisms. Without entry barriers, competitors would erode economic profits over the long run. Barriers to entry include legal patents, economies of scale, and resource control. Economic profits attract new firms in competitive markets until profits return to zero. Monopoly market structures represent the polar opposite of perfect competition models.
Utility companies operate as legal monopolies protected by government franchise agreements. Technology firms often secure patents to protect their innovations from copycat competitors. Antitrust regulators monitor industries closely to prevent unfair barriers to entry. Competitors always notice high economic profits and attempt to capture market share. Financial power alone does not grant long term monopoly protection without structural barriers. Antitrust laws penalize monopolies rather than eliminating competitors to benefit them.
Related questions
Q1. What market adjustment is typically triggered by a reduction (leftward shift) in product supply?
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Answer: E. an increase in the equilibrium price and a decrease in the equilibrium quantity
A leftward shift in supply means less is offered at every price. The new equilibrium sits higher up the demand curve, so the price rises and the quantity traded falls. Price and quantity move in opposite directions whene...
Q2. What does a purchaser's willingness to pay represent?
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Answer: D. maximum amount they are willing to pay for a good
Willingness to pay establishes the absolute ceiling of what a consumer will spend. Purchasers will never buy a good if its market price exceeds this valuation. This metric reflects the subjective value placed on a produc...
Q3. How is a mixed economy characterized?
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Answer: D. Has market forces and government intervention
A mixed economy combines private enterprise with public sector government regulations. Market forces determine resource allocation while government policies correct market failures. This dual structure balances capitalis...
Q4. How does a negative externality distort market efficiency in a manner comparable to?
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Answer: C. a common resource
Negative externalities create social costs that mirror the depletion of common resources. Both market failures result in overconsumption because private actors ignore external impacts. Individual incentives misalign with...
Q5. At what output volume does a monopolist achieve maximum profit?
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Answer: A. marginal revenue equals marginal cost
A profit-maximizing monopolist produces output where marginal revenue equals marginal cost. Producing beyond this point adds more to total cost than to total revenue. Setting output where marginal revenues match marginal...
Q6. What market distortion arises from an uncorrected negative externality?
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Answer: D. equilibrium quantity to exceed the optimal quantity
Negative externalities impose uncompensated costs on third parties during production. Profit-maximizing firms ignore these external costs and produce excess output. Consequently, the free market equilibrium quantity exce...