Question

If Dr. Stu's from the above question sells its output in a monopoly market structure, what will happen in the long run?

A. firms will exit the market, D and MR will decrease, and profit = zero.
B. firms will exit the market, D and MR will increase, and profit = zero.
C. firms will enter the market, D and MR will decrease, and profit = zero.
D. firms will enter the market, D and MR will increase, and profit = zero.
E. profit will not change in the LR due to high barriers to entry.

Answer 1

In a monopoly market, Dr. Stu's can sustain long-run profits due to high barriers to entry that prevent other firms from entering the market and driving profits to zero.

Step-by-step explanation:

If Dr. Stu's sells its output in a monopoly market structure, the long run scenario will differ from a perfectly competitive market. In a monopolistic setting, a single firm dominates the market with high barriers to entry, which allows it to maintain economic profits in the long run. Unlike perfectly competitive markets where profits drive new entries until profits diminish to zero, a monopoly can sustain profits because new firms cannot enter the market easily due to these barriers, such as patents, resources control, or significant start-up costs.

Therefore, the correct answer to what will happen in the long run if Dr. Stu's operates in a monopoly market is E. profit will not change in the LR due to high barriers to entry. The firm's demand (D) and marginal revenue (MR) are likely to stay the same as well, assuming the monopolist continues to maximize profits where MR = MC and there are no changes in market demand or costs.