1. Sources of monopoly power A monopolist, unlike a competitive firm, has some m
ID: 1153707 • Letter: 1
Question
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 scenarido Barriers to Entry Exclusive Ownership Government of a Key Resource Created Koerrcapaellic,t Economies @"tat :Ik 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 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. nnom 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. At the national level, the Federal Communications Commission licenses only a certain number of radio and television stations in each geographic area.Explanation / Answer
Ans:
Table indicating barriers to entry
Scenario Barriers to entry Reason The Aluminum Company of America(Alcoa) Exclusive Ownership of a Key Resource Since the company controlled all U.S. sources of bauxite The natural gas industry Economies of Scale Since low average total cost are obtained only through large scale production. The Federal Communications licenses Government Created Monopolies Since the number of licenses granted is limited thereby creating monopoly.Related Questions
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