A monopolist, unlike a perfectly competitive firm, has some market power. It can

Question

A monopolist, unlike a perfectly competitive firm, has some market power. It can raise 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.

Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Barriers to Entry Control of a Physical Economies Legal Resource Restrictions of Scale Scenario 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 dic not sell bauxite to any other companies, Alcoa was a monopolist in the U.S. aluminum industry from the late-nineteenth century until the 1940s. In the public water 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 makes it risky and, most likely, unprofitable for competitors to enter the market. Patents are granted to inventors of a product or process for a certain number of years. The reason for this is to encourage innovation in the economy. Without the existence of patents, it is argued that research and development for improved pharmaceutical products is unlikely to take place, since there's nothing preventing another firm from stealing the idea, copying the product, and producing it without incurring the development costs.

Explanation / Answer

Scenario 1 represent Control of a physical resource

Scenario 2 represent economies of scale.

Scenario 3 represent Legal Restriction

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