Advertisement

Price and output determination under monopoly in the long run/ Long run equilibrium under monopoly

Visits

Price and output determination under monopoly in the long run/ Long run equilibrium/ Equilibrium of a monopoly in the long run: 

Long-run is that time period in which all the fixed and variable factors of production can be altered. The firm can change the size of plant and machinery and can determine the level of output to maximize its profit. Because of this, the firm does not suffer loss. Likewise, the entry of new firms is restricted somehow and the monopolist earns abnormal profit in the long run due to lack of competition.

      The following conditions must be fulfilled to attain equilibrium under monopoly in the long run:

i) MR must be equal to LMC.
ii) LMC must intersect MR from below.
       The equilibrium of a monopoly, in the long run, can be graphically presented as follows:-
Price-and-output-determination-under-monopoly-in-long-run

            In the above figure, LAC and LMC represent long-run average cost curve and Marginal cost curve. AR and MR represent Average and Marginal Revenue. The equilibrium point is determined at ‘E’ where LMC intersects MR from below. The equilibrium level of output is determined at OQ. The cost incurred is OC and the revenue earned is OP. Since revenue is higher than cost (AR> AC), the monopolist earns abnormal profit in the long-run.

Post a Comment

0 Comments