Question 1

Which of the following is true in the typical firm if economies of scale are relatively important in an industry?

Accepted Answer

If economies of scale are relatively important in an industry, firms will see a substantial increase in efficiency with increasing output, which typically leads to a downward sloping long-run average cost curve. The long-run average cost curve will reach its minimum at the level of output where the economies of scale have been fully utilized, which is often a large fraction of total industry sales. Thus, choice D is the correct answer.

Question 2

The barrier to entry that allowed Alcoa to make persistent economic profits was ownership of an essential input.

Accepted Answer

Alcoa's ownership of bauxite, an essential input for aluminum, allowed them to control the industry and earn economic profits.

Question 3

What is an oligopoly? Give two examples of oligopolistic industries in Australia.
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Accepted Answer

The answer of What is an oligopoly? Give two examples...

Question 4

Which of the following is not an example of a government-imposed entry barrier?

Accepted Answer

Antitrust legislation is not an example of a government-imposed entry barrier. In fact, it is designed to promote competition and prevent monopolies, which can help lower barriers to entry for new firms. Patents, occupational licensing, and barriers to international trade are all examples of government-imposed entry barriers, as they restrict the ability of new firms to enter the market and compete with existing firms.

Question 5

If economies of scale are relatively unimportant in an industry,the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Accepted Answer

If economies of scale are relatively unimportant in an industry, then the typical firm's long-run average total cost curve will not decrease significantly as output increases. Therefore, the firm will not have a significant cost advantage as it produces more output. This means that the firm's long-run average total cost curve will reach a minimum at a relatively small level of output. This indicates that the industry is characterized by many small firms, which implies a competitive market structure.

Question 6

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6000 units of output.In this case,this industry would be _________.

Accepted Answer

The minimum efficient scale at 6000 units suggests that this industry has high barriers to entry and a few large firms dominating the market. Therefore, option C, an oligopoly, is the best choice in this case, especially if the market quantity demanded is 18 000 units. The other options are less likely as they do not match with the characteristics of the industry described.

Question 7

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example,lawyers and medical doctors),but the laws also result in ________.

Accepted Answer

Occupational licensing laws often restrict the number of individuals who can enter a profession, which limits competition and drives up prices for consumers. This can also lead to increased barriers to entry, making it more difficult for individuals to enter the profession and limiting market competition.

Question 8

If economies of scale are significant,the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Accepted Answer

Economies of scale refer to the cost advantages that firms can achieve by increasing their output. As a result, the cost per unit of production decreases with increasing output. Therefore, for a firm to take advantage of economies of scale, it needs to produce at a larger scale. This means that the firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Question 9

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Accepted Answer

An entry barrier refers to obstacles that make it difficult for new firms to enter a market or industry. It is unrelated to the prices charged by existing firms. In fact, firms may charge higher prices if they have significant market power and have the ability to do so.

Question 10

In an oligopoly,minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

Accepted Answer

In an oligopoly, there are few firms that dominate the market, and therefore they have a large market share. This means that the minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales. This is because firms in an oligopoly need to produce a significant amount of output to be able to compete effectively and achieve economies of scale.

Question 11

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?
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Accepted Answer

The answer of How does the demand curve for an...

Question 12

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as ______.

Accepted Answer

A patent gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented, serving as a government-imposed barrier to entry for potential competitors. A copyright pertains to original works of authorship such as books, music, and art. An exclusive marketing agreement refers to a contract between a manufacturer and a distributor granting the distributor exclusive rights to market and sell the manufacturer's product. A tariff is a tax levied on imported goods.

Question 13

Why is a patent a government-imposed entry barrier?

Accepted Answer

A patent gives a firm the exclusive right to a new product, process or invention for a period of 20 years from the date the product is invented. This means that other firms are not allowed to make, use, or sell the same product without the patent holder's permission. As a result, a patent acts as a government-imposed entry barrier because it limits the ability of other firms to enter the market with similar products or processes, thus reducing competition.

Question 14

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

Accepted Answer

Monopolistic competition is characterized by a large number of firms that act independently, whereas in oligopoly, there are only a few firms that act interdependently.

Question 15

The profit-maximising level of output and the profit-maximising price for an oligopolist cannot be calculated when we don't know ________.

Accepted Answer

In order to calculate the profit-maximising level of output and price for an oligopolist, we need to know the demand curve and marginal revenue curve for the industry. This information is essential to determine the level of output that will yield the maximum profit for the oligopolist. The concentration ratio, minimum efficient scale, and type of barrier to entry may also be important factors in determining market conditions for the oligopolist, but they are not as directly relevant to calculating the profit-maximising level of output and price.

Question 16

Occupational licensing is an example of an entry barrier that improves a country's standard of living.

Accepted Answer

The answer of Occupational licensing is an example of an...

Question 17

A patent is an example of ________.

Accepted Answer

A patent is a form of government-imposed barrier to entry that grants exclusive rights to the inventor or creator of the product or idea. It prevents others from producing or selling the same product or idea without permission, giving the patent holder a temporary monopoly in the market.

Question 18

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Accepted Answer

Substantial barriers to entry make it difficult for new firms to enter the market and compete, allowing existing firms to enjoy long-term economic profits. This is because the barriers prevent new firms from entering the market and driving down prices, allowing existing firms to maintain their pricing power and profitability over time.

Question 19

An oligopolistic industry is characterised by a few large firms acting independently.

Accepted Answer

An oligopolistic industry is characterized by a few large firms that may act interdependently, often considering the reactions of other firms when making pricing and output decisions.

Question 20

The most important barrier to entry is economies of scale.

Accepted Answer

Economies of scale refer to the cost advantages a business can potentially achieve as it increases production and reduces costs per unit. This advantage can be a significant barrier to entry for new competitors who may not be able to achieve the same efficiency and cost savings initially. Therefore, economies of scale can be a crucial barrier to entry for new businesses entering a market dominated by established players.

Quiz 9: Monopolistic Competition and Oligopoly