ECO205Y5 Chapter Notes -Durable Good, Dynamic Pricing, Marginal Revenue
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Barriers to entry are the source of all monopoly power. There are two general types of barriers to entry: technical barriers and legal barriers. Barriers to entry - factors that prevent new firms from entering a market. Large-scale firms are more efficient than small ones. Once a monopoly has been established, entry by other firms is difficult because any new firm must produce at low levels of output and therefore at high average costs. Because this barrier to entry arises naturally as a result of the technology of production, the monopoly created is sometimes called a natural monopoly. Natural monopoly - a firm that exhibits diminishing average cost over a broad range of output levels. Another technical basis of monopoly is special knowledge of a low-cost method of production. In this case, the problem for the monopoly firm fearing entry by other firms is to keep this technique uniquely to itself.
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