Critically analyze the following and explain whether you agree or disagree: a. Janet knows a lot of people who do not like Marmite®, a yeast extract that is used as a spread on toast

Question

She says that Marmite is so unpopular that Unilever, the company that manufactures Marmite®, cannot possibly have any monopoly power. b. Edgar says that a single firm in the wind power industry is unlikely to have a significant degree of monopoly power for an extended period of time. Since the cost of producing an additional unit of wind energy is so low, a large number of firms can enter the market and compete away economic profits.

Answer 1

a. Janet is incorrect in assuming that a company cannot have monopoly power in a market simply because she knows a lot of people who do not like the product. A firm's market power depends on its ability to set prices in the market. If Unilever is the only firm in the market for yeast spread and Marmite does not have any close substitutes, it is likely that Unilever has monopoly power.
b. Edgar is incorrect as he ignores the fixed cost of operating in the wind energy market. While the marginal cost of producing wind energy may be low, a firm that wishes to enter the market will face substantial fixed costs. This high fixed cost serves as a barrier to entry in the market which means that an incumbent will enjoy a significant degree of monopoly power.