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Difficulty: MediumMonopoly: Characteristics and Sources of Monopoly Power

Which of the following constitutes a primary legal source of monopoly power for a firm within an economy?

  1. The acquisition of an exclusive patent or legal copyright granted by the stateAnswer
  2. B
    The setting of price equal to marginal revenue to achieve profit maximization
  3. C
    The geographical concentration of many independent firms within a single industrial area
  4. D
    The commercialization of a state-owned enterprise to operate purely for profit

Answer

The acquisition of an exclusive patent or legal copyright granted by the state
State-issued patents, copyrights, and exclusive franchises are established legal barriers that restrict competitors from producing or selling the protected item, creating a legal monopoly.

Step-by-Step Solution

1
Identify the core definition of a legal source of monopoly power
Legal barriers to entry are restrictions imposed by government statutes, franchises, patents, or copyrights that grant a single firm the exclusive right to produce a good or service.
Monopoly power relies on strong entry barriers preventing potential competitors from entering the industry.
2
Evaluate the options against legal barrier criteria
Patents and copyrights explicitly create legal exclusivity protected by law, establishing a statutory monopoly.
Without government protection or legal title, other firms could replicate the product and eliminate monopoly control.

Key Concept

Sources of Monopoly Power and Legal Barriers to Entry
Estimated Time:1m 0s
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Topics

Monopoly: Characteristics and Sources of Monopoly Power

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