Exclusive Ownership of a Key Resource Government-Created Monopolies Economies of
ID: 1174373 • Letter: E
Question
Exclusive Ownership of a Key Resource
Government-Created Monopolies
Economies of Scale
Exclusive Ownership of a Key Resource
Government-Created Monopolies
Economies of Scale
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, 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. 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. 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.Explanation / Answer
1) Government Created monopolies
Patent right gives a particular firm a monopoly in producing a certain product with no competition.
2) Government Created monopolies
When a certain firm is holding all the key component of certain good then it means government have given the right to the firm. So, it is government created monopoly.
3) Economies of scale
When increase in production decreases average cost of firm then it is known as economies of scale.
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