Question

Suppose you reside in the Caribbean and purchase exclusive territory rights for a McDonald's franchise. You can construct as many locations as you choose on all the islands, but while other business owners can open other franchises such as Burger King and Wendy's, no one else can open a McDonald's.

Does your exclusive license represent a monopoly?

Answer 1

This is a form of artificial monopoly.

Step-by-step explanation:

In artificial monopoly a large firm exists with smaller firms in the same market. The large firm does not have a comparative advantage in production efficiency bit still drives the competition out of business.

Large firms use restrictive measures that prevents new form from entering the market. The other type of monopoly is the natural monopoly.

Having exclusive rights to open a MacDonald's in the Carribean where you can construct as many locations as you want is called artificial monopoly. The firm has successfully barred other firms from opening a MacDonald's in the Carribean.