Factors Affecting Long-Run Equilibrium in Monopoly Markets

The unregulated monopoly market structure can produce economic profits in the long run. In order to maintain a monopoly market position in the long run, the firm must be protected by substantial and ongoing barriers to entry.

For regulated monopolies, such as natural monopolies,

1 Set the price P = MC. If P < AC, subsidy

2 National ownership of the monopoly. Problem: once a price is established, consumers are unwilling to accept price increases.

3 Establish a governmental entity that regulates an authorized monopoly. PR = LRAC. Investors receive a normal return for the risk they are taking in the market.

4 Franchise the monopolistic firm through a bidding war. Goal: P = LRAC