2. (a) (i) State and explain two examples of barriers to entry facing firms wishing to enter a monopoly market - Leaving Cert Economics - Question 2 - 2015

In the long run, a monopolist achieves equilibrium at the point where marginal cost (MC) equals marginal revenue (MR). This is where the firm maximizes its profits.

• Step 1: Draw the Diagram
  The typical diagram includes:

  • Price and Quantity Axes
  • Average Revenue (AR) and Marginal Revenue (MR) Curves
  • Marginal Cost (MC) Curve
  • Average Cost (AC) Curve

• Step 2: Identify Equilibrium
  The firm sets output at quantity Q1, where MC = MR.

• Step 3: Determine Price
  The price charged by the monopolist is P1, as indicated by the demand curve at Q1.

• Step 4: Profit Identification
  The profit is represented by the area between the price (P1) and the average cost (AC) at that output level (C1). This profit can be calculated as:

  $ext{Profit} = (P1 - AC) imes Q1$

This area highlights the economic profit earned by the monopolist due to barriers to entry.

Arguments why Irish Water should be regulated:

1. Pricing: Water is a basic human right, and regulation should ensure that it is provided at a fair price to protect consumers from exploitation due to monopoly power.

2. Quality of Service: Regulatory oversight can enforce standards on water quality, ensuring that services provided are safe and reliable for consumers.

3. Investment in Infrastructure: Regulation can mandate that Irish Water invests in maintaining and upgrading infrastructure, ensuring long-term sustainability of water services.

4. Environmental Considerations: Oversight can also ensure that Irish Water is accountable for environmental protection, particularly in terms of wastewater treatment.

Arguments why Irish Water should not be regulated:

1. Laissez-faire Policies: Allowing the market to operate without regulation may promote competition and innovation.

2. Investment Attraction: Over-regulation might deter private investment in water services, hindering the development of efficient service delivery.

3. Natural Price Determination: The price of water should be determined by market forces to ensure that it reflects actual costs and consumer demand, avoiding any artificial interference.