Firm A has been dealing in baby food products for the past 10 years and enjoys a

Question

Firm A has been dealing in baby food products for the past 10 years and enjoys a good market share. Suppose a new firm enters the market to capitalize on the increasing demand for such products. However, the products of the new firm fail to attract customers. The failure of the new firm is due to

A. the pioneering brand advantage of the incumbent.

B. the learning curve effect.

C. scale economies.

D. the specific assets owned by the incumbent.

If the generic production function Q = f (K, L) displays increasing returns to scale, the value of K is fixed in the short run, and the prices of all inputs are held constant, then
A. the short-run average cost curve must be strictly decreasing.
B. the long-run average cost curve must be strictly decreasing.
C. the short-run and the long-run average cost curves will coincide.
D. the long-run average cost curve must be strictly increasing.

If the price of a variable input increases, then
A. the total cost curve will shift up.
B. the average total cost curve will shift down.
C. the marginal cost curve will shift down.
D. the fixed cost curve will shift up.

A new entrant can deter the brand advantage enjoyed by an existing firm by

A. offering their product at a comparatively lower price.

B. getting licenses and patents for their products.

C. offering government certified products.

D. investing in specific assets.

For any company operating in a marketplace, the firm attempts to maximize the value of the company's worth by setting the output where
A. costs are lowest.
B. P < AVC.
C. MR = MC.
D. AR = MC.

Under monopoly, there are
A. unexploited gains from trade.
B. many competitors.
C. advantages of heterogeneous products.
D. problems of easy entry

Under monopoly we have "unexploited gains from trade" because
A. if the firm were competitive it would have increased output in the long run.
B. if the firm were competitive it would have decreased output in the long run.
C. if the firm were competitive it would have not changed output in the long run.
D. the FCC is always trying to regulate it.

Explanation / Answer

1. the pioneering brand advantage of the incumbent.

2. the long-run average cost curve must be strictly decreasing.

3. the total cost curve will shift up.

4. offering their product at a comparatively lower price.

5. MR = MC.

6. unexploited gains from trade.

7. if the firm were competitive it would have increased output in the long run.

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