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
Chapter1: Making Economics Decisions
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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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