Question

For many years the aluminum company of America (Alcoa) controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum. Ahat type of entry barrier was responsible for Alcoa's position in the aluminum industry?

O economies of scale
O a patent on the manufacture of aluminum
O a government-imposed
O barrier ownership of a key input

Answer 1

Alcoa's control of the bauxite supply provided an entry barrier in terms of ownership of a key input, leading to a natural monopoly. This power can weaken over time due to various market changes and increased competition.

Step-by-step explanation:

The type of entry barrier responsible for Alcoa's position in the aluminum industry was ownership of a key input. Alcoa had control over most of the world's supply of bauxite, which is the ore required to produce aluminum. This control constitutes a barrier to entry because it prevents or discourages competitors from entering the market due to the lack of access to this essential resource. Over time, barriers to entry can be weakened by various factors such as the discovery of alternative resources, technological advancements, changes in regulations, or the depletion of the controlled resource, leading to increased competition and a reduction in monopoly power.

A natural monopoly can occur when a company experiences economies of scale over a broad range of output to the extent that a single firm is more cost-effective in serving the entire market than any competitor could be. However, with changing market dynamics and potential competitive pressures from global markets, the natural monopoly status can diminish, thereby reducing previously established barriers to entry.

Answer 2

Alcoa's dominant position in the aluminum industry was due to their control over a key input, the high-quality bauxite ore. This created a natural monopoly and acted as a significant barrier to entry for other firms. Over time, various factors contributed to the weakening of these entry barriers, allowing for more competition. Option fourth is the correct answer.

Step-by-step explanation:

The type of entry barrier responsible for Alcoa's position in the aluminum industry was the ownership of a key input, specifically their control over the world's supply of high-quality bauxite. This control represented a natural monopoly, where a single firm dominates an industry due to unique control over a scarce physical resource, making it difficult for other firms to compete.

In the 1930s, other firms could not produce enough aluminum to compete with Alcoa because they did not have access to the same quality or quantity of bauxite. Over time, the barriers to entry that Alcoa faced were weakened. This could have been due to the discovery of new bauxite resources, improvements in the efficiency of aluminum production by other companies, changes in legal or trade environments, or technological advancements that mitigated the advantages Alcoa had.

Barriers to entry act as deterrents for new competitors and include aspects such as economies of scale, control of scarce resources, legal restrictions, and intellectual property rights. In the case of Alcoa, the barrier was not due to economies of scale, patents, or government-imposed restrictions, but rather their control of bauxite. Finally, it should be noted that although Alcoa's monopoly power has been reduced, its historical dominance serves as a significant case study in understanding how control of a resource can lead to monopolistic markets.