If the monopolist operates on a single plant there may exist three possibilities – (i) If in the short-run the monopolist is incurring losses, he may make such adjustments in his plant as to stop losses in the long-run. He may have a less than the optimum size plant in order to earn profits. If he cannot, he will have to stop production altogether (ii) He may have a plant larger than the optimum size.

This plant is, however, of less than the optimum size, for the monopoly firm is not producing at the lowest point of the LAC curve L. It has some excess capacity. It is not in a position to take full advantage of the economies of scale due to the small size of the market for his product.

In the second case the monopolist is in short-run equilibrium where he is maximizing his profits. In the long run, he changes the scale of his plant in order to earn larger profits. Accordingly, he builds the plant by adjusting its scale of plant in the long run, the monopoly firm has been able to sell more at a lower price and earn larger profits than in the short-run.