Multiple Choice
Suppose a monopolist faces the following costs for various levels of output. Which of the following is a key characteristic that distinguishes a monopoly from a perfectly competitive firm?
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
What barriers to entry can create a monopoly?
A
Low start-up costs, many close substitutes, and free access to distribution networks
B
Temporary advertising advantages, occasional price leadership, and short-term demand spikes
C
Government-imposed price ceilings, open-source technology access, and many small independent firms
D
Legal protections (patents and exclusive licenses), control of essential inputs, and large economies of scale that deter rivals
Verified step by step guidance1
Understand that barriers to entry are obstacles that prevent new competitors from easily entering an industry or area of business, which can lead to the formation of a monopoly.
Identify common types of barriers to entry that can create monopolies, such as legal protections (like patents and exclusive licenses) that grant a single firm exclusive rights to produce a good or service.
Recognize that control of essential inputs means a firm owns or controls a resource critical for production, making it difficult for others to compete.
Consider large economies of scale, where a single firm can produce at a lower average cost than potential entrants, deterring new firms because they cannot compete on price.
Evaluate the options given and match them with these recognized barriers to entry to determine which set correctly describes factors that create a monopoly.
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