Question

Which of these statements about monopolies are true?

• A. Social surplus is maximized in case of monopolies.
• B. Monopolies are price takers.
• C. A monopoly sells goods or services with no close substitutes.
• D. Long run equilibrium profit is greater than zero.

Answer 1

Answer: (C), (D)

The correct options are
C

A monopoly sells goods or services with no close substitutes.

D

Long run equilibrium profit is greater than zero.

A monopoly sells goods or services with no close substitutes. Hence, they are price-makers. Since there is no free entry or exit, monopolies will have a long run equilibrium profit. Since the invisible hand cannot operate, the social surplus is below maximum.