Evaluate the use of barriers to entry in order for firms to make economic profit.

Economic profit is also known as super-normal which is the level of profit made above the normal profit mark. Normal profit is the level of profit made that is essential for a firm to survive in the market. Barriers to entry is a term used to define the obstacles or difficulties a firm faces when trying to enter as a new entrant to a specific market. The greater the barriers to entry the more likely it is for a firm to earn economic profit.
3 main barriers to entry that I will talk about will be patents and trademarks, economies to scale, and brand loyalty.
Patents and trademarks allows for a firm to have sole rights to selling or distributing a product that no rivals can take from them and pass off as their own product. To evaluate, it is hard to distinguish the relative importance of a patent or trademark in various industries. For example in the mobile phone industry apple has patented their brand as an Apple with a specific style for their products but Samsung essentially offer the same characteristic and have the curvature feature too but is not identical to Apple. Economies to scale occur when a firm can produce at a large scale and thus can lower their costs of production, this point is the lowest point on the average costs curve. However, for a small firm it is hard to reap the benefits from economies to scale because the point at which it occurs requires a great deal of finance which a small firm cannot support due to their limited resources and opportunities to grow. Thus, they struggle to earn economic profit more so than a larger more successful firm would. Lastly, brand loyalty is when customers are familiar with a particular brand and are so trusting with it that it is difficult to deter them from that brand. For example, Apple customers, though they can find cheaper substitutes that offer the same service, stick to Apple products due to brand loyalty. Therefore, the companies that have brand loyalty can earn economic profit more easily than new entrants or smaller, less known firms.

Answered by Sneha R. Economics tutor

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