1. Sources of monopoly power Aa Aa A monopoly, unlike a perfectly competitive fi

Question

1. Sources of monopoly power Aa Aa A monopoly, unlike a perfectly competitive firm, assumes some market power. It can ralse its price, within limits without the quantity demanded falling to 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 in that particular industry Consider the market for electricty. In this industry, low average costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary wiring makes it risky and most likely unprofitable for a competitor to enter the market. Which of the following best explains the barriers to entry that exist in this scenario? O Economies of scale O Legal restrictions O Exclusive ownership of a scarce resource

Explanation / Answer

Option a, because the example given above is that od natural monopoly which are characterised by economies of scale that is AC decreases with increase in production. The only barrier to entry is the sunk cost to be faced by the entrant.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.