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List and explain some ways in which a monopolistic firm can use it's lower costs as a barrier to entry.

Monopolistic firms often experience Economies of Scale which makes their average total costs lower than competitors. This can create significant abnormal profit and can create barriers through:

Predatory pricing: The firm may take advantage of their low costs of production by temporarily adjusting their price of output to be lower than their competitors, forcing them out of the market as they will lose their customers.

Research & Development: A firm with significant profits can invest in researching newer, better quality goods before patenting them. This makes their output more attractive than the competition which will reduce the incentive for new firms to compete.

Marketing and Advertising: The profts may also be used for large-scale advertising to capture a significant market share, forcing smaller firms to collapse in some cases whilst also disincentivising entry in the market from new firms.

Reubin B. GCSE Maths tutor, A Level Maths tutor, GCSE Economics tutor...

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