Question

MICROECONOMICS

3. What are barriers to entry? Give examples.  How do the barriers to entry affect the ability to earn long run economic profit?

Answer 1

Barrier to entry stops other firms in the market to enter the market and start production. It can be because the firm holds some exclusive technology, have excess to resources that others don't have or have economies of scale that makes the goods cheaper and others cannot compete at that level.

For example, Pharmaceutical firms have excess and patent to exclusive drug formulas which prevent other firms to produce those goods. China has excess to rare earth mineral which provide them a monopoly in that sector.

If there are barriers to entry then a firm in the market can make a profit in the long run as well as the supply will not increase in the market this will not reduce the price and ensure a profit for the monopolist in the long run as well.