Answer the following statements true (T) or false (F)

Question

1. Once the monopolistic competitor is established and earning positive economic profits, no other firms will be able to profitably enter the market.
2. There are no benefits to monopolistic competition, because it does not provide either productive or allocative efficiency.
3. Oligopolies can form when smaller firms would have higher average costs and be unable to compete, while larger firms would produce such a high quantity that they would not be able to sell it at a profitable price.
4. Even when oligopolists recognize that they would benefit as a group by acting like a monopoly, if one or more give in to the temptation to produce just a slightly higher quantity and earn a slightly higher profit, the market price will fall.
5. Because of antitrust regulations, merging businesses are not allowed to hire workers or lay them off for a period of at least 18 months.

Answer 1

1. False
This statement is false. If one monopolistic competitor earns positive economic profits, other firms will be tempted to enter the market.
2. False
This statement is false. Even though monopolistic competition does not provide productive efficiency or allocative efficiency, it does have benefits of its own. Product differentiation is based on variety and innovation.
3. True
This statement is true. Oligopolies can form when smaller firms would have higher average costs and be unable to compete, while larger firms would produce such a high quantity that they would not be able to sell it at a profitable price.
4. True
This statement is true. Even when oligopolists recognize that they would benefit as a group by acting like a monopoly, each individual oligopoly faces a private temptation to produce just a slightly higher quantity and earn a slightly higher profit—while still counting on the other oligopolists to hold down their production and keep prices high. If at least some oligopolists give in to this temptation and start producing more, then the market price will fall.
5. False
This statement is false. Private firms generally have the freedom to hire workers or to lay them off, as well as to expand or reduce production, set the price they choose, open new factories or sales facilities or close them, and start selling new products or stop selling existing ones.