ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A single firm is the only supplier of a patented drug and is able to set its price well above the cost of production. Which feature of this market most directly allows the firm to sustain these high profits in the long run?
Barriers to entry, here the patent, allow the monopolist to sustain high profits. They stop rivals entering the market and competing the price down, so supernormal profits persist, unlike in markets with free entry and many suppliers.
- ALarge numbers of competing buyers
- BBarriers to entry such as the patentCorrect
- CHomogeneous products supplied by many firms
- DPerfect information held by consumers
Explanation
Long-run supernormal profits can persist only if new firms are prevented from entering. The patent is a legal barrier to entry. The other options describe features of competitive markets that would erode profits.
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