Question

is din incent d. Oligopolistic firms earn profits in the long run only if there are significant barriers to entry

Answer 1

Ans: Oligopoly is a market structure in which there are small groups of large sellers. It can result from the collusion that reduce market competition. In the long run oligopoiles can earn sustained abnormal profits only is there are entry barriers to other firms; the entry barriers prevent other sideline firms to enter the market and capture excess profits. Thus there are huge barriers to entry like government licensing etc in order to establish the market poeer of the few large sellers.

Oligopoly firms can earn in the long run if there are significant entry barriers.

Ans: Three examples of entry barriers that firms with market power can create are economies of scale , legal barriers like patents, copyright etc, other barriers to entry like predatory pricing, brand loyalty etc.

The firms with market power can create barriers like high Research and development costs to ther firms by creating a copyright of their product; existing firms enjoy benefits in terms of low average cost due to increased production and other barrriers like predatory pricing is a practice of lowering prices to force rivals out of the market, a strong brand value also helps the firms to enjoy high profits and discourages other firms.