1. Economic analysis of a monopolistically competitive industry is more complica
ID: 1219732 • Letter: 1
Question
1. Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:
A) monopolistically competitive firms cannot realize an economic profit in the long run.
B) the number of firms in the industry is larger.
C) monopolistically competitive producers use strategic pricing strategies to combat rivals.
D) of product differentiation and consequent product promotion activities.
2. ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in ________ market.
A) definitely a perfectly competitive
B) either a perfectly competitive or a monopolistically competitive
C) neither a perfectly competitive nor a monopolistically competitive
D) definitely a monopolistically competitive
3. Once a cartel determines the profit-maximizing price,
A) each firm faces the temptation to cheat by lowering its price.
B) each firm faces the temptation to cheat by raising its price.
C) changes in the output of any member firm will not affect the market price.
D) entry into the industry by rival firms will not affect the profit of the cartel
4. Critics of industrial regulation say that such regulation:
A) benefits small firms at the expense of large firms.
B) creates insurmountable principal-agent problems.
C) perpetuates monopoly long after new technology has eroded natural monopoly.
D) has resulted mainly from the paradox of voting.
Explanation / Answer
1. Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:
D) of product differentiation and consequent product promotion activities.
2. ACME, Inc. operates in a market structure in which there are many other firms that find it easy to enter or exit. ACME is operating in either a perfectly competitive or a monopolistically competitive market.Because in both the market there is no restriction for entry and exit.
3. Once a cartel determines the profit-maximizing price each firm faces the temptation to cheat by lowering its price. In this manner they can maximise there profit and captures a major portion of the market.
4. Critics of industrial regulation say that such regulation: perpetuates monopoly long after new technology has eroded natural monopoly.
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