Sources of monopoly power A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized markets and competing for customers. Consider the market for taxi services. In order to own and operate a taxi, drivers are required to obtain a taxi medallion. Which of the following best explains the barriers to entry that exist in this scenario?

a. Economies of scale

b. Exclusive ownership of a vital resource

c. Legal barriers

Correct option is A.

Economies of scale

Explanation:

Monopoly is a market structure where single merchant sells the item which has no nearby substitutes. With an imposing business model, there is just one firm in a market with no comparative items. There will be hindrances to entry. Perfect competition is a market structure in where there are enormous number of purchasers and venders selling the indistinguishable items. In this kind of market, there will be free passage and exit.

Among the accompanying the best discloses the hindrances to entry and exit in this situation is as per the following:

At first expenses are high. Normal all out cost falls as there is an expansion in the creation for a huge scope, enormous yield will prompt lower normal expense. Due to the huge size of the firm, existing firms profits by the lower normal all out expense. Along these lines, the organizations will discover hard to contend with the current firms because of higher introductory arrangement cost and subsequently they discourage entry.