1. Sources of monopoly power
A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling
to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized
markets and competing for customers.
Consider the market for public water. In this industry, low average total costs are obtained only through large-scale production. In other words, the
initial cost of setting up all the necessary pipes makes it çisky and most likely unprofitable for a competitor to enter the market.
Which of the following best explains the barriers to entry that exist in this scenario?
Economies of scale
Exclusive ownership of a necessary resource
Legal barriers
