alleryStart learning →What are barriers to entry?
AFactors that stop new firms competing equally with an existing firm
BRules that stop a firm from raising the price it charges buyers
CCosts that a firm must meet before it may close down a factory
DLimits that a government sets on the goods a firm may import
Answer & Solution
Correct answer: A. Factors that stop new firms competing equally with an existing firm
1. Pure monopoly is characterised by barriers to entry.
2. Barriers to entry are factors that prevent new firms from competing equally with the existing firm.
3. Often those barriers are technological or legal conditions, such as a patent held on a product.
4. Control of a natural resource by one firm can be a barrier as well.
5. Price rules, exit costs and import limits are other kinds of restriction and do not define entry barriers.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 1 "Understanding Economic Systems and Business", section 1.7 Competing in a Free Market_
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