Answer:
Monopolist's Market Power and Barriers to Entry
Scenario 1
The Aluminum Company of America (Alcoa) formerly controlled all U.S. sources of bauxite, a key component in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the U.S. aluminum industry from the late-nineteenth century until the 1940s.
Barrier to Entry:
Exclusive Ownership of a Key Resource
Scenario 2
Patents are granted to inventors of a product or process for a certain number of years. The reason for this is to encourage innovation in the economy. Without the existence of patents, it is argued that research and development for improved pharmaceutical products is unlikely to take place, since there's nothing preventing another firm from stealing the idea, copying the product, and producing it without incurring the development costs.
Barrier to Entry:
Government-Created Monopolies
Scenario 3:
In the natural gas 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 and hoses makes it risky and, most likely, unprofitable for competitors to enter the market.
Barrier to Entry:
Economies of Scale
Explanation:
Exclusive Ownership of a Key Resource: It has been argued that monopolies do not arise from exclusive ownership of a key resource. However, having exclusive ownership grants an entity a kind of natural monopoly.
Government-Created Monopolies: Governments create monopolies by protecting intellectual property and issuing patents and copyrights, which give the holders exclusive rights to produce some products or render some services for a period of time. The purpose is to encourage innovation and industrialization.
Economies of Scale: When a company is able to produce goods in large quantity, this reduces the average cost per unit, increases efficiency, and economies of scale are achieved because the costs of production are spread over larger units.
