A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized markets and competing for customers. Consider the market for aluminum. The Aluminum Company of America (Alcoa) used to control all U. S. sources of bauxite, a key ingredient in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the U. S. aluminum industry from the late-nineteenth century until the 1940s. Which of the following best explains the barriers to entry that exist in this scenario?
a- Control over an important input
b- Legal barriers
c- Increasing returns to scale
Answers: 3
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Why is investing in a mutual fund less risky than investing in a particular company’s stock?
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A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price...
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