Question

Choose two (2) barriers to entry for a single-price monopolist, give an example of each, and explain how they serve as a barrier to entry for other firms. Answers should be no more than 1 page. (25)

Answer 1

The main reason for monopoly firm enjoys single seller in the market is due to entry of new firm prohibited due to following reasons

1. Technological progress firm enjoys economies of scale due to technological progress it helps them produce larger output with minimum cost and enhance the market share of the firm it impossible to break this barrier to another firm. Example PepsiCo
2. Heavy investment example Telecommunication industry require huge investment the entry of the new firm is not possible unless huge investment in this business. Hence existing firm enjoys monopoly power

Thus these are some main factors responsible for the monopoly power due to the absence of the barrier of another firm.