Chapter 8: Problem 1

Define: a. barrier to entry b. natural monopoly c. price searcher d. antitrust law

Short Answer

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Barrier to entry is an obstacle that prevents new competitors from entering an industry. A natural monopoly is a single firm that can produce the entire output of a market at a lower cost than multiple firms. A price searcher is a firm that searches for the price that maximizes profit, with some control over the price of its product. Antitrust law is a set of laws aimed at promoting competition and preventing monopolies.

Step by step solution

Define barrier to entry

A barrier to entry refers to a high cost or other type of obstacle that prevents new competitors from easily entering an industry or area of business. These barriers can come in different forms, including government regulation, high startup costs, or controlling resources.

Define natural monopoly

A natural monopoly occurs when a single firm can produce the entire output of a market at a lower cost than if there were multiple firms. This is often due to economies of scale, where the cost per unit falls as the quantity of output increases.

Define price searcher

A price searcher is a firm that faces a downward sloping demand curve, thus it searches for the profit-maximizing price because changes in price can affect the firm's total revenues. It has some control over the prices it charges for its product and does not take them as given.

Define antitrust law

Antitrust law refers to legislation passed by governments to prevent monopolies, promote competition, and achieve allocative efficiency. These laws include measures to control market dominance, prevent collusion, regulate mergers and acquisitions, and promote competition.

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