EC 142 Unit 6 Homework.docx - EC 142 Unit 6 Homework...

This preview shows page 1 - 2 out of 3 pages.

EC 142 Unit 6 Homework Chapter 8: # 2, 8, 9, 10 Question 2 Discuss the major barriers to entry into an industry. Explain how each barrier can foster either monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable? Answer Economies of scale are a barrier to entry due to the need for new companies to start large in order to achieve the low production costs of those already in the business. Not all businesses however require large-scale production techniques. The minimum productive rate in many sectors is but a small percentage of domestic consumption. Natural monopolies provide for a morally justifiable monopoly. Sometimes the economies of scale are such that having two or more firms supplying the market will unreasonably increase the costs. It would be extremely inconvenient and expensive for two telephone companies, or gas companies, or water companies, or electricity companies in the same city as long as transmission involves wires and pipes. In such situations, it makes sense for government to award exclusive franchises, and then to control the resultant monopoly for order to protect the public interest. Patents and licenses are legal barriers to entry which are also justifiable to some degree. Unless inventions were not covered by those who bear no of the costs at all from immediate copying, the incentive to invent and innovate would be lessened and the costly secrecy already imposed would have to be much greater and more expensive. This does not mean, however, that there are

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture