Question

Restriction of firms to enter in monopoly market is an evil of monopoly. Give reason.

Answer 1

Restriction over the entry of new firms:

• Monopoly means that there is only one firm in the market owing to several restrictions for new firms to enter. Some of these restrictions could be
  1. Government license
  2. Owning specific natural resource
  3. patents and copyrights,
  4. Having specific specialized skills, etc.
• Monopoly can be ended but it is quite difficult and so the seller can sustain his monopoly for a longer duration.
• Due to absence of competition, the seller controls the price and gains super normal profits. In spite of the super normal profits earned in monopoly, other firms cannot easily enter the market due to reasons mentioned above.
• Thus monopoly restricts entry of newer firms with factors such as nature, laws, skills and experience.