(a) Outline any two differences between monopoly and perfect competition (b) State any four entry barriers that can prevent the emergence of competitive fir...
Question 1 Report
(a) Outline any two differences between monopoly and perfect competition
(b) State any four entry barriers that can prevent the emergence of competitive firms.
Answer Details
(a) Two differences between monopoly and perfect competition:
| Monopoly | Perfect competition |
|---|---|
| There is only one seller (a single firm) supplying the whole market. | There are very many sellers, each supplying a tiny share of the market. |
| The firm is a price maker; it can influence price by varying output. | The firm is a price taker; it accepts the market price. |
| There are strong barriers to entry, so no new firms enter. | There is free entry into and exit from the industry. |
| The product has no close substitutes. | Products are homogeneous (identical). |
(Any two of the above pairs are acceptable.)
(b) Four entry barriers that can prevent the emergence of competitive firms:
- Legal barriers: Patents, licences, copyrights or sole government franchise reserve production to one firm.
- Control of an essential raw material or resource: One firm owning the key input can shut out rivals.
- High capital/set-up costs and economies of scale: Large minimum investment and cost advantages of existing large firms discourage new entrants.
- Ownership of superior technology or exclusive knowledge (technical barriers), or aggressive strategies such as predatory pricing and strong brand loyalty that make entry unprofitable.
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