Barriers to Entry Sustain Monopoly Profits

Steps:

• Recall that monopolies earn high profits by setting prices above marginal cost without competition.
• Identify factors allowing a single firm to maintain market power long-term.
• Evaluate choices: barriers prevent new entrants, enabling sustained supernormal profits.
• Eliminate options that either reduce pricing power or introduce competition.

Why A is correct:

• Barriers to entry, like patents or regulations, block competitors, allowing the monopolist to charge higher prices and earn economic profits as per monopoly profit maximization where MR = MC and P > MC.

Why the others are wrong:

• B: Economies of scale may create a natural monopoly but do not directly cause high profits; they lower costs but profits depend on market power.
• C: Elastic demand means consumers are price-sensitive, reducing the monopolist's ability to raise prices and thus limiting profits.
• D: High substitutes increase competition, eroding the monopolist's pricing power and driving profits toward zero.

Final answer: A