Question

Which of the following statements is correct? a. Certain factors, such as quantity rather than price competition, production differentiation, search costs and discount factors sufficient to sustain collusion, decrease competition and increase firms’ profits. b. The more profitable the market is for a given number of firms, the more firms will enter the market. This feedback effect will increase competition and decrease firms’ profits. c. Greater sunk costs constrain entry even in the long-run, so firms’ profits will tend to be higher in industries requiring such entry costs. d. All of the above

Answer 1

A) the statement Certain factors, such as quantity rather than price competition, production differentiation, search costs and discount factors sufficient to sustain collusion, decrease competition and increase firms’ profits is true because product differentiation increases the monopoly power which increases its profit

b) the statement The more profitable the market is for a given number of firms, the more firms will enter the market. This feedback effect will increase competition and decrease firms’ profit is true because by seeing profit new firm will enter into the market which means now existing firm will produce less output, as a result profit of firm decreases.

c) the statement Greater sunk costs constrain entry even in the long-run, so firms’ profits will tend to be higher in industries requiring such entry costs is also true

ALL of the above statements are correct.

so, correct option is D.