curve has any elasticity less than infinity,the firm has some monopoly power.It is only the competitive firm that faces a horizontal demand curve who has no market power 5.What are some of the different types of barriers to entry that give rise to monopoly power?Give an example ofeach. The firm's ability to exercise monopoly power depends on how easy it is for other firms to enter the industry.There are several barriers to entry,including exclusive rights (e.g.patents,copyrights and licenses)and economies of scale. These two the mostmm Exclusive rights legally granted poperty or dis tribute a goo or service economies of scale lead to"natural monopolies"because the largest producer can charge a lower price,driving competition from the market.For example,in the production of aluminum.there is evidence to suggest that there are scale economies in the conversion of bauxite to alumina.See U.S.v.Aluminum Company of America,148 F.2d416[19451.discussed in Exercise 8below.) 6.What factors determine the am oun of monopoly power an individual firmis likely to have?Explain each one briefly. Three factors determine the firm's elasticity of demand:(1)the elasticity of market demand,(2)the number of firms in the market,and(3)interaction among the firms in the market.The elasticity of market demand depends on the uniqueness of the product.ie.how easy it is for consumers to substitute away from the product.As the number offirms in the market increas the demand elaticity facing each firm increases because customers may shift to the firm's competitors The number of firms in the market is determined by how easy it is to enter the industry (the height of barriers to entry).Finally,the ability to raise the price above marginal cost depends on how other firms react to the firm's price changes. If other firms match pric changes,customers will have little incentive to switch to another supplier. 7.Why is there a social cost to monopoly power?If the gains to producers from monopoly power could be redistributed to consumers,would the social cost of monopoly power be eliminated?Explain briefly. When the firm explits its monopoly power by charging a price above marginal cost.consumers buy less at the higher price.Consumers eniy less surplus.the ethe pric they ar willing to pay and the narket e on each unit comed.Some of the captured by thel and is a deadweight loss to society.Therefore,if the gains to producers were redistributed to consumers,society would still suffer the deadweight loss. 8.Why will a monopolist's output increase ifthe government forces it to lower its price?If the government wants to set a price ceiling that maximizes the monopolist's output,what price should it set? curve has any elasticity less than infinity, the firm has some monopoly power. It is only the competitive firm that faces a horizontal demand curve who has no market power. 5. What are some of the different types of barriers to entry that give rise to monopoly power? Give an example of each. The firm’s ability to exercise monopoly power depends on how easy it is for other firms to enter the industry. There are several barriers to entry, including exclusive rights (e.g., patents, copyrights, and licenses) and economies of scale. These two barriers to entry are the most common. Exclusive rights are legally granted property rights to produce or distribute a good or service. Positive economies of scale lead to “natural monopolies” because the largest producer can charge a lower price, driving competition from the market. For example, in the production of aluminum, there is evidence to suggest that there are scale economies in the conversion of bauxite to alumina. (See U.S. v. Aluminum Company of America, 148 F.2d 416 [1945], discussed in Exercise 8, below.) 6. What factors determine the amount of monopoly power an individual firm is likely to have? Explain each one briefly. Three factors determine the firm’s elasticity of demand: (1) the elasticity of market demand, (2) the number of firms in the market, and (3) interaction among the firms in the market. The elasticity of market demand depends on the uniqueness of the product, i.e., how easy it is for consumers to substitute away from the product. As the number of firms in the market increases, the demand elasticity facing each firm increases because customers may shift to the firm’s competitors. The number of firms in the market is determined by how easy it is to enter the industry (the height of barriers to entry). Finally, the ability to raise the price above marginal cost depends on how other firms react to the firm’s price changes. If other firms match price changes, customers will have little incentive to switch to another supplier. 7. Why is there a social cost to monopoly power? If the gains to producers from monopoly power could be redistributed to consumers, would the social cost of monopoly power be eliminated? Explain briefly. When the firm exploits its monopoly power by charging a price above marginal cost, consumers buy less at the higher price. Consumers enjoy less surplus, the difference between the price they are willing to pay and the market price on each unit consumed. Some of the lost consumer surplus is not captured by the seller and is a deadweight loss to society. Therefore, if the gains to producers were redistributed to consumers, society would still suffer the deadweight loss. 8. Why will a monopolist’s output increase if the government forces it to lower its price? If the government wants to set a price ceiling that maximizes the monopolist’s output, what price should it set?