Question

Chapter 13

1) Describe the general types of barriers.

2) Competition keeps prices lower for consumers. So why do we have patent laws?

3) What is the relationship between the marginal revenue curve and the demand curve for a single-price monopolist?

4) "A profit-maximizing monopoly never produces an output in the inelastic range of its demand curve." True or false? Explain.

 

Answer 1

Answer 1- Generally, there are two types of barriers -

1. Barriers to entry
2. Barriers to exit

Barriers to entry - To block the potential entrants from entering a market profitably, some blocks are put in place that are not signed.

• Barriers to entry is further classified into legal barriers, control over essential inputs, economics of scale.

Barriers to exit - There may be any types of obstruction that prevent company's or firms from leaving an industry.

Answer 2- Patent law is the law which is used for the promotion of ideas or innovation. Without using Patent laws an inventor must have to consume much more time and valuable money to develop a new product. However by putting the product in the market, a competitor can copy their ideas without spending his valuable time and money to produce it.

In case of long run the supply of new products come into the market is become less.

Answer 3-

• In case of single price monopoly, the demand curve is above from the marginal revenue curve, this is because of the price is determined by the demand curve and the is more than the marginal revenue.

Answer 4-

• The statement is True, because -
• When the profits are maximized then, marginal revenue will be equal to marginal cost,
• Marginal cost never become negative because the marginal cost depends upon the total cost and the total will always go up when more products are produced
• Marginal revenue is only positive, when the demand price is elastic