Answer to Question #123397 in Microeconomics for UFAIRA

Question

Discuss the major barriers to entry into an industry. Explain how each barrier can foster either monopoly or oligopoly.

Answer 1

Monopoly refers to the type of a firm that has dominance in the particular sector of the market and it's products.

Oligopoly on the other hand refers to a state of limited competition where a market is shared by a small number of producers or sellers.

1. Economies of scale. These are the decrease in the cost of production per unit of the product and the quantity per period increases. For a firm to enter to be a monopoly or an oligopoly,they need to invest heavily in large scale.
2. Patents and Licences. A right to ownership of essential raw materials makes firms monopoly or oligopoly because they protect their inventions thus other firms cannot copy them.
3. High set-up costs. The initial cost to set up the company also known as sunk costs which cannot be recorded once the firm leaves the market greatly determines the type of company to be set up either monopoly or small scale firms.