Question

In: Economics

Question 1 How are perfect competition and monopolistic competition different? Economic profit is not positive for...

Question 1
How are perfect competition and monopolistic competition different?

Economic profit is not positive for perfect competitors, but it is for monopolistic competitive firms.
The resources in a society are under-allocated to production within a perfectly competitive industry.
Items sold within monopolistic competition have more variation in their characteristics.
Economic profit is more than zero for perfectly competitive firm, but is zero for monopolistic competitors.

Question 2
________ is firms’ ability to make the same pricing decisions without consulting each other.

Malfeasance
Price fixing
Implicit collusion

Question 3
If oligopoly firms decide to work together, either formally or informally, and honor the agreement then profits can be ________ by ________ output and ________ the price of goods and services.

minimized; reducing; increasing
maximized; increasing; increasing
maximized; reducing; increasing

Question 4
Why do economists use game theory to explain oligopolies?

Oligopolies are complex and varied and game theory allows economists to model different variations of competition and cooperation.
Game theory allows economists to study consumer reaction to product choices in an economy.
Game theory allows economists to mimic the same simplicity of oligopolies.

Question 5
A positive externality arises when a third party, outside the transaction, ________.

fails to allocate resources efficiently
benefits from a market transaction
pays a pollution tax to balance social costs

Question 6
Markets are inefficient when

external costs or benefits are zero.
social benefits are different from private benefits.
private benefits are very low.

Question 7
Which of the following are examples of economic activities with negative externalities?

A manufacturing company contracting with a landfill to collect its waste products.
A gold mine discharging arsenic into a natural lake that it’s using for a tailings pond.
A paper mill paying for lumber to make paper.

Question 8
The supply curve in the market is higher than optimum if

There are external costs not accounted by the market.
This is a public good market.
There are external benefits not accounted by the market.

Solutions

Expert Solution

1. Economic Profit is not positive for perfect competitors, but it is for monopolistic competitive firms
In a perfect competition they just earn profits for how much they can sustain as there are many entries in the market and in a monopolistic competition as there is only one entry so they earn much profits.

2.Implicit collusion
In such a situation the firms act like a monopoly, they do not consult each other for the pricing, or any other acts.It is one of the firms ability.

3. maximised ; increasing ; increasing
Oligopoly is a market where there are large sellers in small numbers, and if all of them decide to unite together then certainly the profits will be maximised, as they will work together so the output will also b increased and they are in small numbers who dominate the market so the price can also be increased.

4.Oliogopolies are complex and varied and game theory allows economists to model different variations of competition and cooperation
Oligopoly is very complex situation and game theory involves actors and players who help the economists understand how it works and what are the changes required.

5.benefits from a market transaction
The definition of positive externality clears states that it is the benefit reaped by the third party of the transaction from the market transaction not related to them.

6. external costs or benefits are zero
The market functions are improper when there are no benefits or profits and the external costs are also zero, it means there is a lack of efficiency.

7.A gold mine discharging arsenic into a natural lake that its using for a tailings pond
When the waste of the gold mine is dischaged into a lake the water gets polluted with the chemicals and toxic waste and the water from the lake may go into a pond which further weakens the situation, this creates a negative impact and it is a negative externality.

8. There are external benefits not accounted by the market
When there are external benefits which are not accounted by the market then the suppliers are tempted to increase the supply by anyhow to increase the profit margin.


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