4.1.5.1 Barriers to Entry and Exit- notes

What is the primary function of barriers to entry in a market?

• To increase competition

• To enhance consumer choices

• To prevent new firms from entering

• To reduce the market share of existing firms

Which type of barrier involves patents and licenses?

• Technical barriers

• Legal barriers

• Economic barriers

• Strategic barriers

What is the effect of high licensing fees on new market entrants?

• Acts as a barrier to market entry

• Reduces the operational costs

• Has no effect on market entry

• Encourages rapid market entry

What is the impact of excessive bureaucracy on new firms?

• It reduces operational costs

• It simplifies the market entry process

• It complicates the market entry process

• It has no significant effect

What is the primary reason for government-imposed licenses and permits as barriers?

• To promote fair competition

• To limit market entry

• To increase government revenue

• To control the quality of products

What role do sunk costs play in the market entry?

• They decrease the risk of entry

• They increase the risk of entry

• They have no impact on entry

• They only affect large firms

How do economies of scale serve as a technical barrier?

• They ensure product diversity

• They enable firms to reduce prices

• They prevent new firms from being competitive

• They increase the number of competitors

Why might a natural monopoly discourage new entrants?

• Because of high profit margins

• Due to high consumer demand

• Because it's more efficient for one firm to operate

• Due to low operational costs

What is predatory pricing?

• Offering discounts to loyal customers

• Pricing products based on cost

• Setting prices low to drive out competitors

• Setting prices high to maximize profits

What is the strategic purpose of limit pricing?

• To encourage market entry

• To maximize short-term profits

• To deter new competitors from entering the market

• To increase market share quickly