1.) Existing producers are better off when barriers to entry exist for new producers, but consumers are worse off.

1.) Existing producers are better off when barriers to entry exist for new producers, but consumers are worse off. Because of these competing effects, it is ambiguous whether a market is more or less economically efficient when barriers to entry exist. (Please address both sentences.)

2) A producer can charge a price far greater than marginal cost so long as barriers to entry prevent competitors from entering the industry.

Expert Solution

1 - False

When there are barriers to entry in a market , and any regulations do not exist , the markets do not run efficiently. This is not an ambiguous but a certain fact. The deadweight loss exists in this market due to loss of consumer surplus mostly.

2 - True

When there are barriers to entry in a market , the sellers is able to reduce the market quantity , he has control over the price. In this case , he can charge the price greater than the marginal cost. But this price must lie on the demand curve. Due to barriers to entry , the firms are not able to enter and existing firm earn positive economic profit by charging greater than MR and MC.

Rahul Sunny answered 2 years ago

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