Two identical firms are considering entering a new market that currently has no suppliers. The demand is large enough for both firms to make a positive profit. There are no fixed costs to enter
Explain how a simultaneous decision to enter on the part of the two firms will lead to a different outcome than a sequential entry decision.
If the firms' entry decisions are simultaneous, then neither firm can issue a credible entry prevention threat. Both firms will enter and a Cournot equilibrium will result. If one firm can decide to enter before the other, it will enter and produce the Stackelberg leader level of output. The other firm will also enter and produce the optimal level of output given the leader's output.
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If you knew that two countries had the same level of real GDP per person, what additional piece of information would help you determine in which country people had a better standard of living?
A. The total physical volume of output for each country B. The average level of prices in each country C. The average number of hours worked per week in each country D. The population of each country
The most fundamental concept in economics is that
a. changes in incentives influence behavior in a predictable way--people will be less likely to choose an option as it becomes more expensive. b. changes in incentives generally do not influence human behavior. c. goods that are provided by government are free for society. d. individuals generally do not consider other alternatives when making a choice.
Three difficulties that limit the usefulness of ownership in resolving incentive problems are:
A. wealth constraints, risk aversion, and free-riding. B. wealth constraints, risk aversion, and bundling. C. risk aversion, free-riding, and conflict of interests. D. wealth constraints, free-riding, and bundling.
An increase in the expected rate of inflation will:
A. lower the demand for real balances because the real interest rate will rise. B. lower demand for real balances because the nominal interest rate will rise. C. increase the demand for real balances because the real interest rate will fall. D. increase the demand for real balances because the nominal interest rate will rise.