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How do barriers to entry impact the level of competition in a market? What might happen to market price as greater barriers to entry come into existence? Not all barriers to entry are created through market conditions. Barriers to entry, such as patents, licenses, or international trade restrictions, may be government imposed. How do government-imposed barriers such as patents impact consumers and suppliers in these markets?

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Anne Gillian Duero
Anne Gillian DueroLv10
28 Sep 2019
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Related questions

You have been hired as a consultant by your local mayor to look at the various market structures. Your role is to provide analysis and answers to these important questions that will help the mayor understand the structures of many of the businesses in his city: Describe each market structure discussed in the course (perfect competition, monopolistic competition, oligopoly, and monopoly) and discuss two of the market characteristics of each market structure. Identify one real-life example of a market structure in your local city and relate your example to each of the characteristics of the market. Describe how high entry barriers into a market will influence the long-run profitability of the firms. Explain the competitive pressures that are present in markets with high barriers to entry. Explain the price elasticity of demand in each market structure and its effect on the pricing of its products in each market. Describe how the role of the government affects each market structure's ability to price its products. Discuss the effect of international trade on each market structure.

You have been hired as a consultant by your local mayor to look at the various market structures. Your role is to provide analysis and answers to these important questions that will help the mayor understand the structures of many of the businesses in his city: Describe each market structure discussed in the course (perfect competition, monopolistic competition, oligopoly, and monopoly) and discuss two of the market characteristics of each market structure. Identify one real-life example of a market structure in your local city and relate your example to each of the characteristics of the market. Describe how high entry barriers into a market will influence long-run profitability of the firms. Explain the competitive pressures that are present in markets with high barriers to entry. Explain the price elasticity of demand in each market structure and its effect on pricing of its products in each market. Describe how the role of the government affects each market structure’s ability to price its products. Discuss the effect of international trade on each market structure. Your paper will need to include a title page, a reference page, and in-text citations properly formatted according to the APA style guide. Also, your content should be eight to ten pages, which does not include your reference or title page. You will need to include at least five scholarly sources from the Ashford Library in your paper as part of your research to support your analysis.

Cray Computer, Inc., located in Colorado Springs, Colorado, is a privately-held producer of high-speed electronic computers with immense storage capacity and computing capability. Although the Crays market is restricted to industrial users and a few large government agencies (e.g., Department of Health, NASA, National Weather Service, etc.), the company has profitably exploited its market niche.

Glen Cray, founder and research director, has recently announced his retirement, the timing of which will, unfortunately, coincide with the expiration of several patents covering key aspects of the Cray computer. Your company, a potential entrant into the market for supercomputers, has asked you to evaluate the short- and longer-run potential of this market. Based on data gathered from your company's engineering department, user surveys, trade associations, and other sources, the following market Demand and cost information has been developed:

P = $54 - $1.5Q

TC = $200 + $6Q + $0.5Q2

where P is the price, Q is units measured by the number of supercomputers, TC is total costs, including a normal rate of return and all figures are in millions of dollars.

A. Assume that these demand and cost data are descriptive of Cray's historical experience.

i.Calculate the profit-maximizing output, price, and economic profit earned by Cray Computer as a monopolist.

ii. What is the point price elasticity of demand at this output level?

 

B. After the patents expire and barriers to entry are eliminated, the market structure changes.

i.If the new entrants have the same total cost structure as Cray, and a competitive equilibrium results.

ii. What will the output of one firm be after all adjustment has taken place; and what will the price be in the market?

iii. What will one firm's profits be?

C. Assume as in B that barriers to entry are eliminated and all entrants have the same cost conditions; however, firms are able to differentiate their products in the eyes of their customers.

i. What will the output of one firm be after all adjustments have taken place?

ii. What will the price be? (Assume that entry causes a parallel shift in the demand curve, as in the monopolistic competitive market).

iii. What will the firm's profits be?

D. Assume that the point price elasticity of demand calculated in part A is a good estimate of the relevant arc price elasticity. What are the estimates for the potential overall market size (i.e., total quantity demanded in the market) for super-computers in B and C?

E.If no other near-term entrants are anticipated, should your company enter the market for supercomputers using the estimates of the market size in D? Why or why not? (Hint: Criterion for entry: if in the longer-run equilibrium the total quantity demanded in the market is greater or equal to the sum of the amounts produced by two firms. There is room for another firm.)

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