Long Run Equilibrium

Long Run Equilibrium

In the long run, the monopolist has the time to expand his plant or to intensively use his existing plant which will maximise his profits. Since there will be no new entry, it is not necessary for the monopolist to reach an optimal scale. It means that monopolist will not stay in business if he makes losses in the long run. The size of his plant and the degree of utilisation of any given plant size depend entirely on market demand.
we depict the case where the size of the market is so large that the monopolist, in order to maximise his output, must build a plant larger than the optimal and over utilise it. This is because to the right of the minimum point of the LAC the SRAC and the LAC are tangent at a point of their positive slope and also because the SRMC must be equal to the LAC. Thus, the plant that maximises the monopolist’s profits leads to higher costs for two reasons: firstly, because it is larger than the optimal size and secondly because, it is over utilised.
It should be clear as to which of the above situations will emerge in any particular case depends on the size of the market (given the technology of the monopolist).