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 scenario. Barriers to Entry Exclusive Ownership of a Key Government- Created Economies Scenario Resource Monopolies of Scale 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. You can find the mines for tanzanite (a blue-purple gemstone) only in Tanzania, but they are owned by the local government. Given that no one is allowed into the mines without government permission, the market structure for tanzanite highly resembles that of a monopoly. In the electricity industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary wiring makes it risky and, most likely, unprofitable for competitors to enter the market.
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 scenario. Barriers to Entry Exclusive Ownership of a Key Government- Created Economies Scenario Resource Monopolies of Scale 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. You can find the mines for tanzanite (a blue-purple gemstone) only in Tanzania, but they are owned by the local government. Given that no one is allowed into the mines without government permission, the market structure for tanzanite highly resembles that of a monopoly. In the electricity industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary wiring makes it risky and, most likely, unprofitable for competitors to enter the market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:### Understanding Monopoly and Barriers to Entry
**Market Power of a Monopolist:**
A monopolist has market power, allowing it to raise prices within limits without facing a drop in the quantity demanded. This power is maintained through barriers to entry, which prevent other companies from entering the market and creating competition.
**Table: Identifying Barriers to Entry**
Below, you'll find scenarios that illustrate different barriers to entry leading to monopolies. Indicate which barrier applies to each scenario.
| **Scenario** | **Barriers to Entry** |
|--------------|-----------------------|
| **1. Government-Created Monopoly** <br> In an imaginary country, there is only one federally licensed lottery agency in any state; private firms cannot start a competitive lottery without government permission. | ⃝ Exclusive Ownership of a Key Resource <br> ⃝ **Government-Created Monopolies** <br> ⃝ Economies of Scale |
| **2. Exclusive Ownership of a Key Resource** <br> Tanzanite mines (a blue-purple gemstone) are exclusively found and government-owned in Tanzania. Without government permission, no one can access these mines, forming a monopoly. | ⃝ **Exclusive Ownership of a Key Resource** <br> ⃝ Government-Created Monopolies <br> ⃝ Economies of Scale |
| **3. Economies of Scale** <br> In the electricity industry, low average total costs are only achieved through large-scale production, making it costly and unprofitable for competitors to enter the market. | ⃝ Exclusive Ownership of a Key Resource <br> ⃝ Government-Created Monopolies <br> ⃝ **Economies of Scale** |
### Graphs or Diagrams
*No specific graphs or diagrams are present in the document. The table provides a textual representation of scenarios explaining monopolistic barriers.*
This educational content aims to clarify how monopolies are formed and maintained through various barriers, catering to students and learners interested in economics.
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