Any tables, graphs etc. used must be fully explained and, if borrowed, cited as

Question

Any tables, graphs etc. used must be fully explained and, if borrowed, cited as to source.

1. Regarding entry barriers. a. Define what an economist means when they speak of an entry barrier. Include a statement of how they impact market behavior by firms. b. Please give an example that does not appear in the web pages for the course, or from your text that describes an entry barrier. The entry barrier could benefit a single firm or it could benefit a small group of firms. Provide some documentation of the entry barrier, a citation, etc. Clearly talk about how the entry barrier functions. c. Explain what you think the (market) value of that entry barrier is, or, how you would go about calculating the value of that entry barrier. d. In general do entry barriers promote the interests of consumers in the economy? Fully explain.

Explanation / Answer

1.

a.

Some markets are dominated by only few firms because there are barriers to entry in these markets. The barriers to entry prevent a new firm from entering the market.

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b.

There are many ways to put barriers to entry, they are discussed below.

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c.

If there are barriers to entry in any market, the market may be dominated by one or few firms; usually they have the market power to influence the price. Market power is defined as the ability of an individual firm to influence the market price of its product. The price can be increase by decreasing the quantity of the firm’s supply. The reduction in supply can be done in accordance with the demand for product in the market.

The entry barrier can be calculated as decrease in consumer surplus. The consumer surplus is the difference between equilibrium price and the price the consumer is willing and able to pay for the good. This is given by the area below demand curve and above equilibrium price up to equilibrium quantity. the perfectly competitive has no barrier to entry and thus total surplus equal to consumer surplus. As the barriers to entry starts imposing dettering entry of firms into the market, the existing firm started gaining market power. The market power decreases consumer surplus. Thus barriers to entry can be measured as loss consumer surplus in these markets.

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d.

As barriers to entry decreases surplus of the consumer and increases price it is not desirable in the part of consumer and society. Moreover barriers to entry help the firm to gain market power. The implications of market power to the society are sometimes inefficient. Some of the consequences of market power are:

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