A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise the price, within limits, without quantity demanded falling to zero. The main way it retains its market power is through barriers of entry--that is, other companies cannot enter the market to create competition in that particular industry.

Which barrier to entry explains why a monopoly exists in each scenario.

1. In the public water industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes makes it risky and, most likely, unprofitable for competitors to enter the market.

2. The Aluminum Company of America (Alcoa) formerly controlled all U. S. sources of bauxite, a key component in the production of aluminum. Given that Alcoa did not sell bauxite to any other companies, Alcoa was a monopolist in the U. S. aluminum industry from the late-nineteenth century until the 1940s.

3. Patents are granted to inventors of a product or process for a certain number of years. The reason for this is to encourage innovation in the economy. Without the existence of patents, it is argued that research and development for improved pharmaceutical products is unlikely to take place, since there is nothing preventing another firm from stealing the idea, copying the product, and producing it without incurring the development costs.

a. Exclusive ownership of a key resource
b. Government-created monopolies
c. Economies of scale