Chapter 9: Problem 1

Classify the following as a government-enforced barrier to entry, a barrier to entry that is not governmentenforced, or a situation that does not involve a barrier to entry. a. A patented invention b. A popular but easily copied restaurant recipe c. An industry where economies of scale are very small compared to the size of demand in the market d. A well-established reputation for slashing prices in response to new entry e. A well-respected brand name that has been carefully built up over many years

Short Answer

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a. Government-enforced barrier to entry b. No barrier to entry c. No barrier to entry d. Barrier to entry not government enforced e. Barrier to entry not government enforced

Step by step solution

Classify a patented invention

A patented invention is a perfect example of a government-enforced barrier to entry. Patents are a type of intellectual property regulation enforced by the government, and they grant the patent holder exclusive rights to produce, sell, and use the patented invention for a specific period of time. They are designed to stimulate innovation by providing inventors the legal tools to prevent others from copying their ideas.

Classify a popular but easily copied restaurant recipe

A popular but easily copied restaurant recipe would be a situation that does not involve a barrier to entry. This is because, while the recipe may be unique and popular, if it is easily copied, then it doesn't prevent new competitors from entering the market. They could simply replicate the recipe and start their own restaurant.

Classify an industry where economies of scale are very small compared to the size of demand in the market

An industry where economies of scale are very small compared to the size of demand in the market would again be a situation that does not involve a barrier to entry. In this scenario, even a small firm can meet market demand efficiently, so there are no significant cost advantages that discourage new entrants.

Classify a well-established reputation for slashing prices in response to new entry

A well-established reputation for slashing prices in response to new entry could be considered a barrier to entry that is not government enforced. If incumbent firms have a history of cutting prices to make it uneconomical for newcomers, it might deter potential entrants from entering the market. However, this barrier is not enforced or regulated by the government.

Classify a well-respected brand name that has been carefully built up over many years

A well-respected brand name that has been carefully built up over many years is a barrier to entry that is not government enforced. Building a strong brand name takes time and can be a formidable deterrent to new competitors. Existing firms with strong brand equity have customer loyalty and recognition that is difficult for new firms to overcome quickly or without significant investment.

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