Correct Answers For Different Market Structures And Economic

Correct answers for different market structures and economic concepts

The following responses provide accurate answers to the specified economics questions regarding oligopolies, monopolies, monopolistic competition, and market behavior based on economic theory and principles. Each question is addressed with correct choices supported by economic literature and theoretical understanding.

Paper For Above instruction

Question 3: Check each of the following that apply to oligopolies.

• MR curve will break into two segments because of the kinked demand curve — True
• Firms will be assured of frequent price changes and increased competition in order to make an expected return — False
• Firms that require a large capital investment benefit — True
• There is neither government control nor efficiency — True

Oligopolies often exhibit a kinked demand curve which causes the marginal revenue (MR) curve to break into two segments, influencing price stability. Firms with large capital investments benefit from economies of scale but face less government regulation generally, though this varies by industry. The notion that oligopolies necessarily lead to efficiency or frequent price changes is misleading, as price rigidity often characterizes oligopolistic markets, preventing frequent changes and promoting stable pricing.

Question 4: Check all the following that are true.

• Oligopolies have a perfectly elastic demand curve — False
• Oligopolies have an elastic demand above the prevailing price — False
• Oligopolies have an inelastic demand below the prevailing price — True
• The prevailing oligopoly price is at the intersection of the elastic and inelastic portions of the kinked demand curve — True

Oligopolistic demand curves are characterized by a kink where the demand becomes inelastic below the prevailing price, due to price rigidity and fear of retaliation. Above the prevailing price, demand tends to be elastic as consumers are more responsive to price increases. The intersection point of elastic and inelastic regions explains the price stability typical in oligopoly markets.

Question 9: Check each of the following that are characteristics of monopolies.

• P = AR = MR = D — False
• Economies of scale — True
• Ownership of essential resources — True
• Selling an identical product — True
• Legal and other barriers to entry — True
• Price takers — False
• Price setters — True

Monopolies are characterized by sole control over a resource or market, significant barriers to entry, and the ability to set prices. They typically sell unique products and benefit from economies of scale that reinforce their market dominance. Unlike perfectly competitive firms, monopolies are price setters rather than price takers.

Question 11: Check all of the following that determine the elasticity of demand for monopolistic producers.

• The incomes of consumers — True
• Demand for the unique products sold by monopolies — True
• The number of competing firms selling similar products — Partially True
• Customer perception of the similarity or uniqueness for the product or service — True

The elasticity of demand in monopolistic markets depends significantly on consumer income, the perceived uniqueness of the product, and the level of competition. The number of competing firms affects market power indirectly but is a vital factor in perceived substitutability and demand responsiveness.

Question 12: Check each of the following that characterizes oligopolies.

• Ownership of raw materials by one firm — False
• Government restrictions may exist on the number of producers — True
• Advertising is not important — False
• Economies of scale restrict the number of producers — True
• Unique products — False
• Ownership of raw materials by a few firms — True

Oligopolies are characterized by a small number of firms controlling raw materials or significant market share, often with potential governmental regulation on the number of producers. Advertising plays a strategic role in differentiating products, and economies of scale serve as barriers to entry, consolidating market power among existing firms.

Question 17: Check all of the following that apply to oligopolies.

• With an inelastic demand and a price decrease, total revenue will decline — False
• The demand curve is inelastic above the prevailing price because other firms do not follow the price increase — True
• Firms that raise their price above the prevailing price have a decrease in total revenue — False
• The demand below the prevailing price is inelastic because firms will be forced to follow a price decrease — True

In oligopolistic markets, demand is typically inelastic above the current price due to the kinked demand curve effect, which discourages price increases. Price decreases tend to be matched, making the demand more elastic below the prevailing price, affecting total revenue depending on price movements.

Question 32: Check each of the following that may exist in oligopolies and monopolistic competition when compared to pure competition.

• Increased efficiency — False
• Higher costs — True
• Less efficiency — True
• More output than pure competition — False
• Lower output than pure competition — True
• Lower costs to consumers — False

Both oligopolies and monopolistic competition generally result in higher costs and lower efficiency compared to pure competition due to market power, advertising costs, and product differentiation. They tend to produce less output and charge higher prices, reducing consumer surplus.

Question 34: Check each of the following that may lead to unfair competition within monopoly.

• Dumping — True
• Economies of being established — False
• Reciprocation agreements — True
• Ownership of essential resources — True

Unfair competition in monopolies can stem from practices like dumping (selling at below cost to eliminate competitors), reciprocation agreements to maintain market power, and control over essential resources that barriers new entrants. These practices hinder fair competition and distort market functioning.

Question 42: Check each of the following that describe Monopolistic Competition.

• Identical products — False
• Product differentiation — True
• Non-price competition — True
• Significant barriers to entry and exit — False
• A small (handful) of competing firms — False
• Many firms competing — True
• Price taking — False

Monopolistic competition features many firms offering differentiated products, leading to non-price competition such as branding and advertising. Barriers to entry are relatively low, allowing free entry and exit, contrasting with monopoly or oligopoly market structures.

Question 43: Check each of the following that results in higher costs for monopolistic competitors.

• More customer services — True
• A unique atmosphere — True
• Varied consumer choices — True

Higher costs in monopolistic competition arise from increased customer service efforts, creating unique atmospheres, and providing varied choices—all factors adding to operational expenses but aimed at differentiation and customer loyalty.

Question 46: Which of the 4 market structures have at least some market power? (check all that apply)

• Pure competition — False
• Monopolistic competition — True
• Oligopoly — True
• Monopoly — True

Market power exists primarily in monopolistic competition, oligopoly, and monopoly markets. Only pure competition, characterized by many small firms and perfect substitutability, lacks significant market power.

Question 47: Farming products often fit into which of the 4 market structures?

• Monopoly — False
• Monopolistic competition — False
• Oligopoly — True
• Pure competition — True

Farming products typically align with perfect competition due to the homogeneity of products and many small producers, and sometimes oligopoly if market consolidation occurs. However, in general, farming fits closer to pure or perfect competition.

Question 50: (Check each of the correct answers) Game theory suggests that firms in oligopoly:

• Would resist offering a low price because other firms would match the price and their advantage would no longer exist — True
• Would resist offering a high price because fewer buyers would purchase from that firm — False
• Should choose to cooperate with other sellers in maintaining the price within a "moderate" zone — True
• Will seek to "gouge" their customers by charging the highest possible prices — False

Game theory indicates that oligopolistic firms often cooperate or tacitly collude to maintain moderate prices, resisting price wars that erode profits. They are also wary of price reductions because such moves can trigger price-matching, leading to reduced profits for all.

References

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