"If the amount of product differentiation in a monopolistically competitive industry is very small, the outcome in that market will not be very different than if it were a perfectly competitive industry." Explain.
What will be an ideal response?
If the amount of product differentiation is very small then the good produced by any individual firm is a very close substitute for that produced by any other firm. That means that consumers will pay only a slightly higher price for their favorite good, as opposed to a large increase in price if the goods were very different. This means that all firms' prices will be virtually the same. This is a very similar situation to perfect competition where all firms' prices are exactly the same.
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The above figure shows the utility of wealth curve for a homeowner whose only possession is a $50,000 house. If there is a 20 percent chance that the home could be completely destroyed, would this homeowner buy insurance?
A) No, because the homeowner is not risk averse. B) Yes, at any price because the homeowner is risk averse. C) Yes, but only if it costs less than $10,000. D) Yes, but only if it costs less than $20,000.
The rationing function of prices refers to
A) the situation when government must intervene in a market when there is a large shortage or surplus. B) the synchronization of decisions by buyers and sellers that leads to an equilibrium. C) the synchronization of decisions by buyers and sellers through the direction of government agencies. D) the situation when only the rich get the goods they want.
Using the graphical method to demonstrate the break-even point, which of the following statements is NOT true?
a. constant selling price per unit are represented by TR b. constant variable cost per unit is represented by TC c. variable costs increase at a constant rate of VC per unit of output d. below the point where TR and TC intersect, operating profits are realized e. all of these are true
Firms in an oligopoly market tend to have strategies that are ____ and ____ economic profits. a. Independent of one another; earn guaranteed b. Independent of one another; are not guraranteed
c. Interdependent with one another; earn guaranteed d. Interdependent with one another; are not guraranteed