Long run profitability can only be explained through the existence
of effective barriers to entry. Without barriers, firms will enter
any profitable industry reducing profits. While a monopolist that
is unconcerned about entry will always charge the profit maximizing
price, a monopoly that is concerned about potential entry may
reduce price to make entry seem less profitable. The lowest such
price that a firm would be willing to charge would be the zero
profit price or where P=ATC, as shown below.
© 1995-1999 EconWeb - All Rights Reserved