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 explain5 the barriers to entry that exist in this scenario?

a. Control of a scarce resource
b. Legal restrictions
c. Economies of scale

Answer 1

The market structure for tanzanite highly resembles that of a monopoly due to the government's control of a scarce resource, the tanzanite mines, and the legal restrictions requiring government permission to access them.

Step-by-step explanation:

The barriers to entry that exist in the tanzanite market, as outlined in the scenario where the local government owns the mines and requires permission for access, are both control of a scarce resource and legal restrictions. The tanzanite mines being exclusive to Tanzania means that the government's control over these resources allows it to operate a monopoly, as there are no alternative sources for the gemstone. Moreover, the requirement of government permission to access these mines constitutes a legal barrier to entry that prevents other potential competitors from mining and selling tanzanite.

Answer 2

The correct option is option B,legal restrictions

Step-by-step explanation:

Control of scarce resource exists if a particular business has exclusive access to a major input of production that no other business has access to, thereby making it the only player in that industry.

Legal restrictions is a barrier to entering an industry due government refusal to license another player in a particular business line as it is the case with the local government in this scenario.

Economies of scale is about the ability to produce an item at very cheap cost such that rival firms are not about to compete based on the cost advantage.