There are two forms of long-run monopoly adjustments:
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Single plant adjustments
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Multi-plant adjustments
1. Single-Plant Adjustment:
If the monopolist runs on a single plant, there are three possibilities: If the monopolist is losing money in the short term, he can make changes to his plant to prevent losses in the long run. In order to make money, he may have a plant that isn’t the optimal size. If he can’t, he’ll have to quit making everything. (ii) He could have a plant that is bigger than it needs to be.
This plant, however, is not the optimal size since the monopolistic business is not producing at the LAC curve’s lowest point, L. It has considerable capacity left over. Due to the tiny size of the market for its goods, it is unable to fully benefit from economies of scale.
The monopolist in the second scenario is in short-run equilibrium, maximizing his earnings. In the long run, he reduces the size of his factory in order to increase earnings. As a result, he constructs the plant by altering the facility’s scale. In the long run, the monopolistic business has been able to sell more at a lower price and generate more profits than in the short term.
In the third scenario, if the monopolist tries to build a plant that is larger than this optimal scale facility, he will lose money instead of making more. Diseconomies of production would result if the output was increased above the optimal level. It means that generating more than the optimum output will result in a greater cost per unit.
2. Multi-Plant Adjustments:
A monopolist may own and run multiple plants. In the short term, he can run any number of plants, whether they are the same size or various sizes. However, in the long term, he only runs the plants that bring in the most money. Given similar cost circumstances and the same size plants, he will have each plant of that size where the long-run average cost curve LAC and the short-run average cost curve SAC touch at their minimal points.
If the monopolist operates four plants in the short run, he may reduce them to two in the long run by using more efficient plants, lowering the long-run average and marginal costs, and increasing profits. The multi-plant monopoly adjustment, like the single-plant monopoly, may be followed by quantity and price adjustments in the long term. In the event of a multi-plant monopoly, however, the company will operate at the lowest long-run average costs in order to maximize earnings.