chapter 15- monopolies

Question 1

what is the main cause of monopolies arising?

Answer 1

barriers to entry

Question 2

list 5 sources of barriers to entry

Answer 2

1. a single business owns a key resource
2. gov gives a single business the exclusive right to produce the good (patents, copyright laws)
3. natural monopoly: a business can produce the entire Q at lower costs than could several businesses (eg utilities)
4. technological superiority
5. network externality- a good whose value to one person rises as more people use the good (eg social media)

Question 3

economies of scale=

Answer 3

What are economies of scale?
Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.

Question 4

in a natural monopoly, the ATC slopes downward due to huge ___ and small ___

Answer 4

fixed costs huge

marginal costs small

Question 5

if a company has large economies of scale, they have a ___ monopoly

Answer 5

natural