Question

In: Economics

Regarding sunk costs, which of the following is not true? a. Sunk costs, although likely to...

Regarding sunk costs, which of the following is not true?

a.	Sunk costs, although likely to be important in guiding the decisions of firms, are unlikely to be influential on market structure.	b.	Sunk costs are not relevant to the firm’s decisions after it has entered the market.
c.	Sunk costs are an important factor in determining entry into a market because these costs may be quite high.	d.	Sunk costs are an important factor in determining entry into a market because sunk costs cannot be recouped.

Of the following, which would be considered to be true if companies use game theory?

a.	Business decisions are based upon what is believed to be your competitor’s decision.	b.	All must follow the same rules.
c.	The winner gets to go first in the next game.	d.	All players discuss all decisions.

Although oligopolies face constraints like other markets, which of the following is one difference?

a.	It faces a horizontal demand curve.	b.	It faces a vertical demand curve.
c.	It faces a positively sloped demand curve.	d.	It faces reactions of rival firms.

Which of the following is a monopolistically competitive firm?

a.	A price taker	b.	A price searcher
c.	A seller of a unique product	d.	Only a producer of services

Expert Solution

Answer 1

Regarding sunk costs, which of the following is not true?

b.	Sunk costs are not relevant to the firm’s decisions after it has entered the market.

Reason: A sunk cost is a cost that cannot be recovered or changed and is independent of any future costs a business may incur. Since decision-making only affects the future course of business, sunk costs should be irrelevant in the decision-making process.

Answer 2

Of the following, which would be considered to be true if companies use game theory?

a.	Business decisions are based upon what is believed to be your competitor’s decision.

Reason: Game theory helps in determining a strategy of your own, based on your competitor's strategies.

Answer 3

Although oligopolies face constraints like other markets, which of the following is one difference?

d.	It faces reactions of rival firms.

Reason: In an oligopoly market, there are few large sellers who can react to the moves of each of their competitors

Answer 4

Which of the following is a monopolistically competitive firm?

c.	A seller of a unique product

Reason: Although there are large number of sellers in a monopolistic market, however, they all sell differentiated products.

Rahul Sunny answered 2 years ago

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