Give a scenario that shows how a situation could develop in which firms would NOT want to enter or exit a monopolistically competitive industry.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of how a situation could develop in which firms would not want to enter or exit a monopolistically competitive industry. For example, let’s say because of increased popularity. the tennis equipment industry has an economic boom that generates high profits. Soon many firms enter this industry to take advantage of the profits. As a result, the economics profits gradually drop to zero. Then the industry begins to experience losses because supply becomes higher than demand. Because of this, firms exit the industry, thereby decreasing losses until zero economic profits are reestablished. This situation remains stable for many years. During this time, firms do not want to enter the market because the industry would start to take losses. Also, firms do not want to leave the market because they are earning a normal rate of return at zero economic profits.
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What type of model would be best if we wanted to analyze the market for fast food? Why?
The interest rate would fall and the quantity of money demanded would
a. increase if there were a surplus in the money market. b. increase if there were a shortage in the money market. c. decrease if there were a surplus in the money market. d. decrease if there were a shortage in the money market.
The economist who advocated a single tax on land was:
A. Adam Smith. B. John Maynard Keynes. C. Henry George. D. Milton Friedman.
The inclusion of external benefits in the decision making process determining equilibrium price and quantity leads to
A. higher priced items and increased quantity. B. lower priced items and a decline in quantity. C. lower priced items and increased quantity. D. higher priced items and a decline in quantity.