A monopolist, unlike a perfectly competitive firm, has some market power. It can

Question

A monopolist, unlike a perfectly 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 Ownership of a Vita Economies Resource Barriers of Scale Scenario At the national level, the Federal Communications Commission licenses only a certain number of radio and television stations in each geographic area. Throughout much of the twentieth century, many people viewed South Africa's De Beers group as a monopoly because it controlled a large percentage of diamond production and sales. 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.

Explanation / Answer

1) Legal Barrier ( since the license provided are by a Commision and the licenses are alloted only to a certain number of radio and television stations )

2) Ownership of a vital resource ( here the resource is diamonds )

3) Economies of scale ( Large scale production required to cover all costs )

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