Barriers to entry are factors that prohibit firms from entering an industry. There are barriers of entry in monopolies, oligopolies, and monopolistic competition. Barriers to entry include economies of scale, patents, ownership of resources or pricing/advertising. Economies of scale prevent new firms from entering industries by making it so that only large firms can run with low costs. High costs for small companies keep firms out. Patents and licenses prevent firms from entering an industry because the government grants patents to firms, which create monopolies to reward the firm for its innovation. A patent runs for 20 years and allows only the patent holder to produce the patented good. Another barrier to entry is if a firm owns all resources necessary to an industry. Lastly, firms can be kept out by existing firms lowering prices, or using lots of advertising to keep people buying their product instead of the product of a new company.

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Economies of scale prevent new firms from entering the oil industry because they must buy massive equipment.

The phone/internet industry is very difficult to enter because it is expensive to dig holes through the ground to wire cables to houses. This is a high fixed cost.
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http://en.wikipedia.org/wiki/Barriers_to_entry
http://www.photopla.net/wwp0503/entry.php
http://www.photopla.net/wwp0503/entry.php

Which of the following isn't a barrier to entry?
A. Government issued lisences
B. Economies of scale
C. Advertising
D. Perfect competition



Answer: D