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1. Sources of monopoly power Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded fallin 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 competiti 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 Scenario 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. 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 electronics 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. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource

1. Sources of monopoly power Monopolists, unlike competitive firms, have some market power. A monopolist can increase price, within limits, without the quantity demanded fallin 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 competiti 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 Scenario 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. 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 electronics 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. Government- Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter13: Monopoly And Antitrust
Section: Chapter Questions
Problem 2P
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Homework (Ch 15) 1. Sources of monopoly power Monopolists, unlike competitive firms, have some market power. A monopolist can increase 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 Scenario 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. 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 electronics 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 oth companies, Alcoa was a list in the U.S. aluminum industry from the late 19th century until the 1940s. Government- Created Monopolies Economies of Scale O Exclusive Ownership of a Key Resource
Transcribed Image Text:Homework (Ch 15) 1. Sources of monopoly power Monopolists, unlike competitive firms, have some market power. A monopolist can increase 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 Scenario 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. 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 electronics 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 oth companies, Alcoa was a list in the U.S. aluminum industry from the late 19th century until the 1940s. Government- Created Monopolies Economies of Scale O Exclusive Ownership of a Key Resource
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