Which of the following best explains the barriers to entry that exist in this scenario [Solved]

A monopoly, unlike a perfectly competitive firm, assumes some market power. It can raise its price, within limits, without the quantity demanded falling to zero. The main way it retains its market power is through barriers to entry- that is, other companies cannot enter the market to create competition in that particular industry.

C) The electricity firm has economies of scale. This means that that it can produce more at a lower cost (provided crappy management inefficiency does not increase the cost). So another firm entering the market cannot increase production and sell at a lower cost than the original firm, so the second firm will leave the market because no one is willing to buy from them at a higher price (provided that the quality of service is equal). Therefore, the electricity firms low cost of selling electricity and high production (because of economies of scale) makes it harder for others to compete with them and becomes a barrier to entry.

This post is last updated on hrtanswers.com at Date : 1st of September – 2022

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