Assume Carl’s Jr. is the sole company with the official license to sell waffle fries in your community; its monopoly would arise from: a) government-created barriers. b) technological superiority. c) excess capacity. d) control of a scarce resource or input.
The correct answer and explanation is:
The correct answer is: a) government-created barriers.
A monopoly like the one described for Carl’s Jr. arises when the government grants exclusive rights to a company, preventing other competitors from entering the market. This can happen in industries where certain goods or services are considered essential or beneficial for public interest. In this case, the government could have granted Carl’s Jr. an official license to sell waffle fries in the community, which effectively creates a barrier to other businesses attempting to sell the same product.
Government-created barriers are often established through patents, licenses, or regulations that limit competition. By giving Carl’s Jr. an exclusive right to sell waffle fries, the company is able to operate without facing competition, thus maintaining a monopoly. This type of barrier prevents other firms from offering similar products, which would normally force prices down and improve product variety and quality through competition.
In contrast, other options listed here—such as technological superiority, excess capacity, and control of a scarce resource—are not the primary factors for this particular monopoly. Technological superiority might allow a company to have a competitive edge but would not necessarily lead to exclusive rights unless there is some form of patent protection. Excess capacity refers to a situation where a company produces more than it can sell, which could lead to price reductions or market adjustments, but it does not create a monopoly. Lastly, control of a scarce resource or input could lead to a monopoly, but in this case, the government licensing is the key factor creating Carl’s Jr.’s market dominance.