Question

If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

Choose one answer.
a. increasing returns to scale.
b. government-created barriers.
c. technological superiority.
d. control of a scarce resource or input.

Answer 1

The monopoly on the rare cocoa bean would arise from control of a scarce resource or input, preventing other competitors from entering the market due to lack of access to this vital raw material.

Step-by-step explanation:

The monopoly on the rare cocoa bean required to make chocolate-covered peanuts would result from control of a scarce resource or input. This situation is akin to historical examples such as ALCOA's monopoly due to its control over bauxite, an essential material to produce aluminum.

When a company has sole control over a physical resource that is necessary to create a product, and this resource is scarce, it can establish a natural monopoly because other firms do not have access to this resource and thus cannot compete. Control of the resource effectively creates a barrier to entry for other firms.

Therefore, this kind of monopoly does not arise from strong economies of scale, government-created barriers, or technological superiority, but instead from an entity's exclusive access and ownership of a critical component needed for production. In the given scenario, no other firm can enter the market and provide competition because they cannot procure the rare cocoa beans necessary to produce the specialized product.