In many large U.S. cities, taxicab companies operate as near monopolies because of which of the following?

• A. government-issued licenses that restrict entry
• B. the presence of many competing ride-sharing companies
• C. low fixed costs of operating a taxi business
• D. high consumer demand for taxi services

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of a monopoly in microeconomics. A monopoly exists when a single firm is the sole provider of a good or service in a market, often due to barriers to entry that prevent other firms from competing.
2. Step 2: Identify common barriers to entry that can create or sustain a monopoly. These include government regulations, high startup costs, control of essential resources, or technological advantages.
3. Step 3: Analyze the options given in the problem. Consider how each factor affects the ability of new firms to enter the taxi market:
4. - Government-issued licenses that restrict entry create a legal barrier, limiting the number of firms allowed to operate.
5. - The presence of many competing ride-sharing companies suggests competition, which contradicts a monopoly.
6. - Low fixed costs would typically encourage more firms to enter, reducing monopoly power.
7. - High consumer demand alone does not create a monopoly; it affects market size but not entry barriers.
8. Step 4: Conclude that the key reason for near-monopoly status in many large U.S. cities is the government-issued licenses that restrict entry, as these licenses limit competition by legally controlling who can operate taxis.