A Level Economics AQA Practice Exam

Which of the following is a barrier to entry in a monopoly?

1. High advertisement costs for new entrants

2. Availability of numerous substitutes

3. Low capital requirements

4. Unrestricted market access for all firms

The correct answer is: High advertisement costs for new entrants

High advertisement costs for new entrants are indeed a barrier to entry in a monopoly. This is because substantial marketing expenditures can deter potential competitors from entering the market. In a monopolistic market, the existing firm typically has significant brand recognition and customer loyalty, which means that new entrants must spend heavily on advertising to compete effectively. These high costs can make it financially unviable for new firms to enter the market, thus allowing the monopoly to maintain its dominant position without facing competition. The other options do not represent barriers to entry. For instance, the availability of numerous substitutes would generally enhance competition rather than create barriers, as it indicates that consumers have alternatives to the monopolist's product. Low capital requirements would actually facilitate entry rather than hinder it, as they imply that starting a business in that market is financially accessible. Unrestricted market access for all firms indicates a competitive landscape rather than a monopoly, as it suggests that any business could enter the market freely. Hence, high advertisement costs specifically act as a significant deterrent to potential entrants in a monopoly.