Theory question 105
Market StructuresSection B (answer four questions only from this section)
(a) Outline any two differences between monopoly and perfect competition.
(b) State any four entry barriers that can prevent the emergence of competitive firms.
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(a) Any two: a monopoly has one seller while perfect competition has many; monopoly has barriers to entry while perfect competition has free entry; the monopolist is a price maker while a competitive firm is a price taker; monopoly product has no close substitutes while competitive products are identical; monopolist can earn abnormal profit in the long run while a competitive firm earns only normal profit; monopolist's demand curve slopes downward while a competitive firm's is horizontal.
(b) Any four: patents and copyrights; government licences/legal monopoly; control of essential raw materials; very large capital requirement (economies of scale); exclusive franchise; heavy advertising/brand loyalty; price-cutting by existing firms; tariffs and trade restrictions.
Two differences, four barriers.