A town council allows only one operator to run cable cars to a mountain viewpoint because extra cables would damage the landscape. The operator has increase...
Question 1 Report
A town council allows only one operator to run cable cars to a mountain viewpoint because extra cables would damage the landscape. The operator has increased ticket prices after a rise in tourist income.
(a) Which barrier to entry is created by the council's decision? [1]
(b) State one reason why the cable-car operator may have monopoly power. [1]
Answer Details
(a) The council's decision creates a legal barrier to entry, such as a licence requirement or government regulation. [1]
(b) The operator may have monopoly power because it is the only supplier of cable-car journeys to the viewpoint. [1]
The legal restriction prevents rivals from constructing another cable system. High infrastructure costs would also discourage entry. Monopoly power means the firm has significant control over price because customers have few or no close alternatives.
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