Question

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.

Consider the market for tanzanite. The mines for this blue-purple gemstone, found only in Tanzania, are owned by the local government. Given that no one is allowed into the mines without government permission, the market structure for tanzanite highly resembles that of a monopoly.

Which of the following best explains the barriers to entry that exist in this scenario?

a. Exclusive ownership of a key resource.
b. Economies of scale.
c. Government created monopolies.

Answer 1

The barriers to entry in the tanzanite market are due to exclusive ownership of the mines by the Tanzanian government, which controls access to the essential resource, creating a monopoly. Option a is the answer.

Step-by-step explanation:

In the case of the tanzanite market in Tanzania, the barriers to entry that exist are primarily due to the exclusive ownership of a key resource, namely the tanzanite mines. The local government owns these mines and requires permission for anyone to access them, effectively preventing any potential competitors from entering the market. This situation does not arise from economies of scale or government-created monopolies in the usual sense, but from the total control over the access to the necessary raw material to produce tanzanite, which creates a monopoly scenario.