When a second firm enters a market to compete against a natural monopoly, A. the price will exceed the average cost for all quantities B. it means that there is enough demand for a third firm as well C. there is no quantity at which the price would exceed the average cost D. demand will increase for each firm in the market. Question: When a second firm enters a market to …
7 If a new seller enters a market to compete with an existing natural monopoly from ECON ECONOMETRI at National Taiwan University
what happens if a second firm enters the market in a natural monopoly? competition will drive down the market price charged to customers and decrease the quantity each firm can sell, one will go out of business
Mar 30, 2012 · When a second firm enters a monopolist's market: A) market price will rise. B) the quantity produced by the first firm will decrease. C) the first firm's profits increase. D) All of the above will occur. Correct Answer(s): B Points Earned: 0.5/0.5
Economies of scale occur when increased output leads to lower average costs. Therefore new firms, with relatively low output, will find it difficult to compete because theirs average costs will be higher than the incumbent firms benefiting from economies of scale. The prospect of higher average costs may deter entry.
Brand loyalty through advertising. Developing consumer loyalty through establishing a strong brand image can deter entry. With a very strong brand image, a new firm would have to spend a lot of money on advertising, which is a sunk cost and a deterrent to entry.
The existence of barriers to entry make the market less contestable and less competitive. The greater the barrier s to entry which exist, the less competitive the market will be . Barriers to entry are an essential aspect of monopoly markets.
if you don’t have access to a good location for a theatre in say Covent Garden, it creates a barrier to entry. 3. Brand loyalty through advertising.
Limit Pricing. This occurs when a firm sets price sufficiently low to deter entry. A monopoly may engage in limit pricing – even though it means fewer profits, it prefers to keep prices lower to prevent competition. It is related to economies of scale. 5.
Network effects. In many industries, the success of the business requires a firm to have a critical mass of users. This is particularly the case with social media. People don’t choose necessarily the best technical, social media – but the ones their friends use.
Google wasn’t the first search engine , but now it has dominated the market and is often pre-installed on browsers. Therefore, it is very difficult for any new firm to compete with the first mover privileges that Google has. 10. Network effects.
Patents: rights given by the government to a firm that has developed a new product or invention to be its sole producer for a specified period of time. For that period, the firm producing the patented product has a monopoly on the product. Intel and microprocessor chips used by IBM computers. Licences: are granted by the government ...
Monopoly lies at the opposite extreme of market structures to perfect competition . As a single seller, the monopolist faces no competition from other firms and it has substantial market power (the ability to control price). Yet a pure monopoly is quite rare in