Question

The market for the products of tool and die manufacturers is relatively easy to enter and includes a large number of firms that produce a variety of fixtures, dies, molds, machine tools, cutting tools, gauges, and other tools used in other manufacturing processes.

1. The above information about tool and die manufacturers implies the industry is a:

a. perfectly competitive industry

b. monopolistically competitive industry

c .oligopoly

d. monopoly

2. How would a decrease in economic activity leading to a decrease in the demand for a wide range of manufactured products affect the market price of tool and die products?

a. increase price

b. decrease price

c. no impact on price

3. How would a decrease in economic activity leading to a decrease in the demand for a wide range of manufactured products affect the profit maximizing level of output for individual tool and die manufacturers?

a. increase output

b. decrease output

c. no impact on output

4. How would a decrease in economic activity leading to a decrease in the demand for a wide range of manufactured products affect firm profit in the short run?

a. increase profit

b. decrease profit

c. no impact on profit in the short run

Answer 1

1) The above information about tool and die manufacturers implies the industry is a monopolistically competitive industry. This is because the market for the products of tool and die manufacturers is relatively easy to enter and includes a large number of firms that produce a variety of products. Large number of firms, free entry and exit and variety of products (product differentiation) are features of monopolistic competition. Hence the answer is option (b).

2)A decrease in economic activity leading to a decrease in the demand for a wide range of manufactured products will reduce the demand for tool and die products. This will lead to fall in price of tool and die products. Hence the answer is option (b).

3) A decrease in economic activity leading to a decrease in the demand for a wide range of manufactured products will reduce the equilibrium level of output for individual tool and die manufacturers due to fall in demand. Hence the answer is option (b).

4) A decrease in economic activity leading to a decrease in the demand for a wide range of manufactured products will reduce the firm profit in the short run due to fall in demand. Hence the answer is option (b)