In the short-run, the monopoly makes_______

Analyze the question: It asks what a monopolist earns in the short run. Monopoly is a market structure with a single seller, so we need to recall its profit behaviour.

Concept:

• A monopolist is the only seller, so it faces the whole market demand curve, which slopes downward. It is a price maker.
• It maximizes profit where MR = MC, then charges the price on the demand curve (AR) at that output.
• Barriers to entry such as patents, licences, and control of raw materials stop new firms from entering the market.

Solution:

1. At the profit-maximizing output (MR = MC), the price (AR) is usually higher than average cost (AC).
2. Profit per unit = AR − AC > 0, so total profit = (AR − AC) × Q is positive.
3. This profit is above the minimum needed to keep the firm in business, so it is called abnormal (supernormal) profit.
4. In a competitive market, abnormal profit would attract new firms and push it down to normal profit. Under monopoly, barriers to entry keep competitors out, so the abnormal profit can continue even in the long run.

Other options:

• A. Normal profit: This is typical of perfect competition in the long run, and of monopolistic competition in the long run.
• C. Loss: A monopolist can make a loss in the short run if demand is very weak. However, the standard expected answer is abnormal profit.
• D. Sales: Every firm makes sales, so this is not a profit concept.

Answer: The monopoly typically makes abnormal profit, which is option B.

Exam tip: Remember "Monopoly = Maximum (abnormal) profit." Normal profit goes with perfect competition in the long run, while monopoly keeps its abnormal profit because of barriers to entry.