1. Sources of monopoly power A monopolist, unlike a competitive firm, has some m
ID: 1140646 • Letter: 1
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1. Sources of monopoly power A monopolist, unlike a 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 Exclusive Ownership of Government- a Key Resource Created Monopolies of Scale Economies Scenario At the national level, the Federal Communications Commission licenses only a certain number of radio and television stations in each geographic area Throughout much of the 20th century, many people viewed South Africa's De Beers Group as a monopoly because it controlled a large percentage of diamond production and sales. In the electricity industry, low average total 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 competitors to enter the market.Explanation / Answer
a) Licencing is an example of government created monopolies. No other company can enter the market without the government license and that allows the existing firms to operate as a monopoly.
b) De Beers had a monopoly because they were the only one who has ownership of key resources.
c) a power plant have very high installation cost but very less marginal cost it is an example of economies of scale.
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