Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling o zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition m that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Scenario In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market. The Aluminum Company of America (Alcoa) formerly controlled all U.S. sources of bauxite, a key component in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the U.S. aluminum industry from the late 19th century until the 1940s. At the state level, the Pennsylvania Liquor Control Board licenses only a certain number of dining establishments to serve alcohol within a geographic area. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource
Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded falling o zero. The main way it retains its market power is through barriers to entry-that is, other companies cannot enter the market to create competition m that particular industry. Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Scenario In the natural gas industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and hoses makes it risky and, most likely, unprofitable for competitors to enter the market. The Aluminum Company of America (Alcoa) formerly controlled all U.S. sources of bauxite, a key component in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the U.S. aluminum industry from the late 19th century until the 1940s. At the state level, the Pennsylvania Liquor Control Board licenses only a certain number of dining establishments to serve alcohol within a geographic area. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter15: Monopoly
Section: Chapter Questions
Problem 12PA
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