Answer to Question #114997 in Microeconomics for Siya

Question

Monopolists who rigorously seek to innovate
1) are irrational since they are competing with themselves
2) could be profit maximizing because they expect lower costs by innovation
3) do so out of fear of future competition or they would not innovate
4) do not exist because they have entire market to themselves already

Answer 1

The correct answer is (2) could be profit maximizing because they expect lower costs by innovation.

A monopoly is a market structure that is mainly characterized by existence of a single seller and many buyers. There is also high entry barriers to this market.

Monopolies will keep on innovating so that they can keep the cost as low as possible there by improving their profit levels. In addition by maintaining their cost as low as possible this gives them a competitive advantage and increases barriers to entry to the market and thus maintaining their monopoly status.