Question

Which of the following are sources of market power? I. government-issued patents and copyrights II. a Minnesota law requiring all new funeral homes to have an embalming room, which costs upward of $30,000, whether or not it is functional or will be used III. a Portland, Oregon, law that makes it a crime for limousine companies to charge less than $50 per ride

Answer 1

The correct answer is option I.

Step-by-step explanation:

Market power refers to the situation when a firm can affect the price of its product. There is no market power in a perfectly competitive market.

Market power generally arises from barriers to entry. There are four barriers to entry,

• Resource ownership
• Government regulation
• Copyrights and patents
• Startup cost

In the given example, patents and copyrights are an example of a barrier to entry.

A firm that possesses patents or copyrights for a product, will be able to affect its price as the firms will not be able to produce that product.

This gives market power to he firm holding patents or copyrights.