Question 1

eBay.com dominates the online auction business because sellers want to go where the buyers are and buyers want to go where the sellers are. Bigger is thus better. Hence, eBay.com illustrates the concept of:

Accepted Answer

eBay.com illustrates the concept of a network externality, where the value of the service increases as more people use it, attracting more buyers and sellers to the platform.

Question 2

As the number of people who use Facebook increases, the value of Facebook to its users increases. This is an example of:

Accepted Answer

Network externalities occur when the value of a product or service increases as more people use it, which is the case with Facebook.

Question 3

When you use a service like Facebook for free, it is likely that:

Accepted Answer

When using free services like Facebook, users are typically considered the product because their data and attention are monetized through advertising, making advertisers the actual customers.

Question 4

As network externalities broaden the use of a product, the:

Accepted Answer

As network externalities increase, the value of a product or service grows as more people use it, leading to a greater need for a single standard to ensure compatibility and maximize benefits, often resulting in one standard prevailing.

Question 5

Platform businesses are firms that:

Accepted Answer

Platform businesses are firms that facilitate interaction among people, often by connecting users and enabling exchanges or transactions.

Question 6

Platform monopolies:

Accepted Answer

Platform monopolies can create efficiencies in production by streamlining processes and reducing costs through economies of scale.

Question 7

Monopolies that exist because economies of scale create a barrier to entry are called:

Accepted Answer

The answer of Monopolies that exist because economies of scale...

Question 8

A natural monopoly occurs when a monopoly:

Accepted Answer

A natural monopoly occurs when significant economies of scale are present, allowing a single firm to supply the entire market at a lower cost than multiple firms could.

Question 9

Currently, it is illegal to import prescription drugs into the United States despite the fact that U.S. consumers could buy drugs from Canada at lower prices than those available in the United States. What set of cost curves is most consistent with the price difference between the United States and Canada?

Accepted Answer

Producing a drug typically involves high fixed costs due to research and development, but once developed, the marginal cost of producing additional units is relatively low. This cost structure can lead to price differences between markets like the U.S. and Canada.

Question 10

What is a central reason monopoly forces are especially strong in sectors dominated by platform businesses?

Accepted Answer

Network externalities are a central reason monopoly forces are strong in platform businesses, as the value of the service increases with more users, leading to a winner-takes-all dynamic.

Question 11

All of the following are good examples of network externalities except:

Accepted Answer

Cigarettes do not exhibit network externalities because their value to a user does not increase as more people use them, unlike the other options where the value increases with more users.

Question 12

Which of the following is the best example of a network externality?

Accepted Answer

Network externality occurs when the value of a product or service increases as more people use it, which is characteristic of the Internet.

Question 13

When starting up, platform monopolies often spend money like it was free, and investors often are willing to provide money for them to do so. A likely explanation for this is that

Accepted Answer

Firms spend heavily to gain a first mover advantage, which can lead to market dominance and long-term profitability, justifying initial high expenditures.

Question 14

A British waste management company acquired two other companies that specialized in disposal of hazardous wastes even though the two companies were losing money. Planning and regulatory requirements in the United Kingdom make it difficult for firms to establish new hazardous waste landfills, and the combined companies would control most hazardous waste landfills in some parts of the country. How do the planning and regulatory requirements affect the market for hazardous waste?

Accepted Answer

The planning and regulatory requirements create high barriers to entry, making it difficult for new competitors to enter the market, thus benefiting the merged companies by reducing competition.

Question 15

There are many restaurants in a city, each one offering food and services that differ from those of its competitors. There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day. The restaurant industry in Raleigh is best categorized as:

Accepted Answer

The restaurant industry in Raleigh is best categorized as monopolistically competitive because there are many restaurants (sellers) offering differentiated products (food and services), and there is free entry and exit in the market. Each restaurant serves a small fraction of the total market, which is characteristic of monopolistic competition.

Question 16

Platform monopolies:

Accepted Answer

Platform monopolies provide important services that can enhance consumer welfare, but they also present new antitrust challenges due to their control over large networks and potential to stifle competition.

Question 17

Regulations created some years ago allow cell phone customers to keep the same phone number even when they switch to a different provider. This change:

Accepted Answer

Allowing customers to keep their phone numbers when switching providers reduces switching costs, making it easier for customers to change providers. This increases competition and reduces the monopoly power of cell phone providers.

Question 18

Which of the following is the best example of a market that exhibits network externalities?

Accepted Answer

Social media is a market that exhibits network externalities because its value increases as more people use it, enhancing the experience and connectivity for all users.

Question 19

Platform businesses often don't charge people for their product. They do this because:

Accepted Answer

Platform businesses often offer free services to users to attract a large user base, and then monetize the data collected from these users through targeted advertising, partnerships, or selling insights.

Question 20

Network externalities exist when:

Accepted Answer

Network externalities occur when the value of a product or service increases as more people use it, enhancing its overall benefit to all users.

Quiz 14: Monopoly and Monopolistic Competition

eBay.com dominates the online auction business because sellers want to go where the buyers are and buyers want to go where the sellers are. Bigger is thus better. Hence, eBay.com illustrates the concept of:

As the number of people who use Facebook increases, the value of Facebook to its users increases. This is an example of:

When you use a service like Facebook for free, it is likely that:

As network externalities broaden the use of a product, the:

Platform businesses are firms that:

Platform monopolies:

Monopolies that exist because economies of scale create a barrier to entry are called:

A natural monopoly occurs when a monopoly:

What is a central reason monopoly forces are especially strong in sectors dominated by platform businesses?

All of the following are good examples of network externalities except:

Which of the following is the best example of a network externality?

When starting up, platform monopolies often spend money like it was free, and investors often are willing to provide money for them to do so. A likely explanation for this is that

Platform monopolies:

Regulations created some years ago allow cell phone customers to keep the same phone number even when they switch to a different provider. This change:

Which of the following is the best example of a market that exhibits network externalities?

Platform businesses often don't charge people for their product. They do this because:

Network externalities exist when: