Describe the general types of barriers
What will be an ideal response?
Barriers to entry can be divided into legal barriers and natural barriers. Legal barriers occur when government action blocks competition in a market. For instance, the government could grant a public franchise, government license, patent, or copyright. In all cases, the government action prevents other firms from entering the market. Alternatively, a firm might buy up a significant portion of a natural resource. For instance, DeBeers controls over 80 percent of the world's diamond market. The other type of barrier to entry is a natural barrier. A natural barrier to entry occurs when economies of scale are so large that they make it possible for one firm to meet the entire market demand at a lower price than could two or more firms. In this case, the market will "naturally" evolve to become a monopoly as a larger firm uses its cost advantage to cut its price and drive its high-cost, smaller competitors out of business.
You might also like to view...
In the above figure, if we begin at S1 and the Fed sells bonds
A) the price of bonds rises, and so does the interest rate. B) the price of bonds falls, and the interest rate rises. C) the price of bonds rises, and the interest rate falls. D) the price of bonds falls, and so does the interest rate.
If new firms enter a perfectly competitive industry, the market supply
A) does not change. B) becomes more price elastic. C) becomes more price inelastic. D) increases. E) decreases because each firm produces less than before the entry.