Question

Complete the following table by indicating which barrier to entry appropriately explains why a monopoly exists in each scenario. Scenario Barriers to Entry Government-Created Monopolies Economies of Scale Exclusive Ownership of a Key Resource You can find the mines for tanzanite (a blue-purple gemstone) only in Tanzania, but they 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. In an imaginary country, there is only one federally licensed lottery agency in any state; that is, it is impossible for any private firm to start up a competitive lottery without a government license to do so. In the electricity industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary wiring makes it risky and, most likely, unprofitable for competitors to enter the market. Continue without saving

Answer 1

Scenario 1:

Tanzanite Mining in Tanzania

Barriers to Entry 1:

Government-Created Monopolies Explanation: The exclusive ownership of the mines by the local government, along with restricted access without government permission, creates a barrier to entry. This governmental control contributes to the market structure resembling a monopoly.

Scenario 2:

Lottery Industry in Imaginary Country

Barriers to Entry 2:

Government-Created Monopolies Explanation: The presence of only one federally licensed lottery agency, with no possibility for private firms to start a competitive lottery without government permission, is a barrier to entry. The government's licensing restriction creates a monopoly in this industry.

Scenario 3:

Electricity Industry

Barriers to Entry 3:

Economies of Scale Explanation: The requirement for large-scale production to achieve low average total costs in the electricity industry acts as a barrier to entry. The significant initial costs of setting up the necessary infrastructure make it financially challenging and unprofitable for potential competitors to enter the market.