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Technology companies such as Apple and Samsung are currently involved in legal disputes regarding patents on various aspects of their smartphones - Leaving Cert Economics - Question 2 - 2013
Question 2
Technology companies such as Apple and Samsung are currently involved in legal disputes regarding patents on various aspects of their smartphones. When a company win... show full transcript
Worked Solution & Example Answer:Technology companies such as Apple and Samsung are currently involved in legal disputes regarding patents on various aspects of their smartphones - Leaving Cert Economics - Question 2 - 2013
Step 1
Explain three barriers to entry, other than patents, that can exist in business.
Answer
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Government Regulation and Legal Restrictions: Governments may impose regulations that restrict new firms from entering a market, such as licensing requirements or health and safety standards.
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High Capital Requirements: Many industries require substantial investment and resources to enter, necessitating significant upfront costs that deter new competitors.
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Strong Brand Loyalty: Established companies benefit from brand recognition and customer loyalty, making it difficult for new entrants to attract customers away from these established players.
Step 2
Outline two reasons why monopolies may not be in the public interest.
Answer
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Higher Prices: Monopolies can charge higher prices than what would be available in a competitive market since they have no competition, leading to reduced consumer welfare.
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Lower Output: Monopolies typically produce less than what would be produced in a competitive market, leading to inefficiencies and a lower overall supply of goods.
Step 3
Explain, with the aid of a diagram, the long run equilibrium position of a monopoly firm.
Answer
In the long run, a monopoly firm maximizes profit where marginal cost (MC) equals marginal revenue (MR). This can be illustrated with a diagram where the average cost (AC) curve is below the price (P) line at the profit maximizing output (Q).
- Equilibrium Point: The equilibrium is established where the firm produces Q1 quantity of goods and sells at price P1, where P1 is higher than AC indicating the firm earns supernormal profits. This monopoly existence leads to inefficiency in resource allocation as they do not produce at the lowest point of the AC curve.
Step 4
Explain the term ‘competitive advertising’.
Answer
Competitive advertising refers to marketing strategies aimed at highlighting the advantages of a firm’s products or services over those of its competitors. This form of advertising emphasizes differentiation and attempts to persuade consumers to favor one brand over another.
Step 5
Outline, using an example, how advertising can be used to prevent small firms entering an industry.
Answer
Large firms may spend heavily on advertising to create a perception that their products are of better quality or more desirable. For example, if a well-established brand spends $500,000 on an advertising campaign, smaller firms may struggle to compete for consumer attention and market share, leading them to reconsider entering the industry due to high costs.
Step 6
State and explain two possible disadvantages of advertising for the consumer.
Answer
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Increased Prices: Companies may raise their prices to cover the costs of advertising, leading to reduced consumer welfare as higher prices can limit access to essential goods.
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False or Misleading Information: Advertising can sometimes mislead consumers by presenting incomplete or exaggerated claims about products, resulting in poor purchasing decisions.