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 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. 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 an imaginary country, there is only one federally licensed lottery agency in any state; that is, it is impossible for any private firm to start up a competitive lottery without a government license to do so. Government- Created Monopolies O O Economies of Scale O O 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 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 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. 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 an imaginary country, there is only one federally licensed lottery agency in any state; that is, it is impossible for any private firm to start up a competitive lottery without a government license to do so. Government- Created Monopolies O O Economies of Scale O O Exclusive Ownership of a Key Resource
Chapter9: Monopoly
Section: Chapter Questions
Problem 2.3P
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Transcribed Image Text: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 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.
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 an imaginary country, there is only one federally licensed lottery agency in any
state; that is, it is impossible for any private firm to start up a competitive lottery
without a government license to do so.
Government-
Created
Monopolies
O
Economies
of Scale
O
Exclusive
Ownership of a
Key Resource
O
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