Question

The fundamental source of monopoly power is

Answer 1

Monopoly power fundamentally arises from barriers to entry, which can be due to economies of scale, control of resources, legal protections like intellectual property, or government action such as patent issuance.

Step-by-step explanation:

The Fundamental Source of Monopoly Power

The fundamental source of monopoly power is the presence of barriers to entry in a market that prevent or discourage potential competitors from entering and challenging the incumbent firm. These barriers can include:

• Economies of scale that may lead to a natural monopoly.
• Exclusive control of a physical resource necessary for production.
• Legal restrictions such as patents, trademarks, copyright protection, and government-imposed limitations on competition.
• Tactics to intimidate or undercut competitors, like predatory pricing.

For example, intellectual property laws protect legally guaranteed ownership of an idea, through instruments like patents, copyrights, trademarks, and trade secrets. A natural monopoly occurs when a single firm is most efficient in supplying the whole market due to economies of scale, making it virtually impossible for new entrants to compete effectively.

In some instances, the government itself may create monopolies through actions like issuing a patent, which provides a firm the exclusive right to sell a new good or service, thus establishing a government monopoly.

Answer 2

Answer: The correct answer is barriers to entry.

Explanation: The fundamental source of monopoly power is barriers to entry. There are a variety of barriers that may exist, depending on the industry that the monopoly is in. A possible barrier could be that one company has primary control over a necessary natural resource.