How the Limit-Pricing Model Fit within the Harvard Approach to Assignment

How the Limit-Pricing Model Fit within the Harvard Approach to Industrial Economics - Assignment Example Among these technological causes, one is the diminishing cost structure of the monopolist firm. There are some internal and external economies and diseconomies of scale. If the economies of scale dominate over the diseconomies of scale the firm faces diminishing cost. That's why the cost declines with the expansion of the firm. Higher the amount of production lower would be the average and marginal cost and hence higher would be the capability to charge the lower price. That can be shown with the help of the following diagram. The above case is called the phenomenon of natural monopoly; the new firm's entry gets restricted automatically because of the technological nature of the existing firm. The new firm would not be able to compete with the existing firm. (Kutsoyiannis 1994) 2. There are many barriers that are responsible for the monopoly power that a firm may enjoy. A high level of fixed cost is also a cause behind the emergence of monopoly power. If in an industry, the starting of a new venture is subject to high establishment cost or resource cost it would be difficult for the new entrants to start a new venture in the market. That also contributes to the monopoly power of the firm or firms as the scope of new entry becomes narrower due to the high time and cost required for starting production in the market. (Hoag 2006) 3. Another major cause behind the emergence of monopoly power is the legal barriers to entry. In this situation, the monopolist is protected by the legal system of the country from competition from new firms. The state enforces some laws that would enable a single company to sell any particular good or service. The best example is the case of USPS for delivering the first class mail. No other company is entitled to the right to sale the same commodity. That's why USPS enjoys the monopoly power in the market. Monopoly power is protected by federal law.