Explain two barriers to entry for a new business

Principles of Microeconomics_5 1. (Barriers to Entry) Explain how economies of scale can be a barrier to entry. 2. (Barriers to Entry) Identify the other two barriers to entry and explain how they block new firms from this market. 3. (Monopoly) Suppose that a certain manufacturer has a monopoly on the sorority and fraternity ring business (a constant-cost industry) because it has persuaded the “Greeks” to give it exclusive rights to their insignia. a. Using demand and cost curves, draw a diagram depicting the firm’s profit-maximizing price and output level. b. Why is marginal revenue less than price for this firm? c. On your diagram, show the deadweight loss that occurs -because the output level is determined by a monopoly rather than by a competitive market. d. What would happen to price and output if the Greeks decided to charge the manufacturer a royalty fee of $3 per ring? 4. (Conditions for Price Discrimination) List three conditions that must be met for a monopolist to price discriminate successfully. 5. (Perfect Price Discrimination) Why is the perfectly discriminating monopolist’s marginal revenue curve identical to the demand curve it faces? Output 0 1 2 3 4 5 6 7 Price $100 90 80 70 60 50 40 30 FC $100 VC $0 50 90 150 230 330 450 590 TC TR a. Complete the table b. What is the highest profit or lowest loss available to this firm? c. Should this firm operate or shut down in the short run? Why? Profit/Loss d. What is the relationship between marginal revenue and marginal cost as the firm increases output? 6. Monopolistic Competition and Perfect Competition Compared) -Illustrated below are the marginal cost and average total cost curves for a small firm that is in long-run equilibrium. a. Locate the long-run equilibrium price and quantity if the firm is perfectly competitive. b. Label the price and quantity p1 and q1. c. Draw in a demand and marginal revenue curve to illustrate long-run equilibrium if the firm is monopolistically competitive. Label the price and quantity p2 and q2 . d. How do the monopolistically competitive firm’s price and output compare to those of the perfectly competitive firm? e. How do long-run profits compare for the two types of firms? 7. (Characteristics of Monopolistic Competition) Why is a firm in monopolistic competition said to be competitive? In what sense is that firm monopolistic? 8.