Answer to Question #76035 in Microeconomics for bangalie

Question

What motivation does a monopolist have to over-invest in plants and equipment? what factors might restrain the monopolist from such over-investing?

Answer 1

Barriers to entry are characteristics of a particular market that block new firms from entering it. This motivates the monopolist to over-invest in plants and equipment.

Some factors favours the monopolist for such over –investing are economies of scale, locational advantages, high sunk costs associated with entry, restricted ownership of key inputs, and government restrictions . But if we restrict these factors then it might be restrain the monopolist from such over-investing.

Answer: Barriers to entry.
Location advantage, high sunk costs, government restriction etc.