1] There are very few perfectly competitive markets in the real world. This is b
ID: 1224968 • Letter: 1
Question
1] There are very few perfectly competitive markets in the real world. This is because:
the minimum efficient scales of production are very high.
the available products are almost impossible to differentiate.
the number of sellers is always increasing as the production technology of successful firms can be easily copied.
there exists perfect information among the consumers
2] The monopoly power of a firm increases if:
the number of sellers increases.
the average cost of production decreases.
the demand curve becomes elastic.
the number of entry barriers decreases.
3] Which of the following can harm the contestable structure of a market?
Large number of buyers
Brand recognition
Homogeneous products
Low startup capital
4] To be in a cartel, every participating firm should:
operate at the same marginal costs.
incur the same fixed costs.
sell their outputs through the same retail chains.
have the same number of manufacturing units.
5] The Bertrand model is associated with:
monopolistic competition.
perfect competition.
price competition.
a contestable market model.
6] Which of the following is true of deep discounting strategy undertaken by a firm?
A price is set by a producer equal to the average cost of its competitor.
It reduces the entry barriers for new firms.
The strategy can be undertaken even by a firm with decreasing returns to scale.
The firm is a large one and has a significant market share.
7] Network effects are associated with products like:
washing machines.
cars.
airline travels.
cell phones.
Explanation / Answer
1.
The minimum efficient scales of production are very high.
A firm can’t sustain in the market till it reaches the minimum efficient scale. The non-reaching firms have to bear high cost of production, which forces them to leave the market. Therefore, the market becomes narrow with few competitors only.
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