Question 1

Network externalities can:
A)create diffuse profits for producers.
B)decrease the benefits of a winner-take-all industry.
C)lead to the adoption of inefficient technologies.
D)increase the value of new technologies.

Accepted Answer

The answer of Network externalities can:
A)create diffuse profits for producers.
B)decrease...

Question 2

Using the basic supply/demand framework, economic analysis of market structure leads to the conclusion that:
A)perfect competition promotes efficient outcomes, whereas the other market structures are associated with some deadweight loss.
B)monopoly promotes efficient outcomes, whereas the other market structures are associated with some deadweight loss.
C)oligopoly promotes efficient outcomes, whereas the other market structures are associated with some deadweight loss.
D)monopolistic competition promotes efficient outcomes, whereas the other market structures are associated with some deadweight loss.

Accepted Answer

In a perfectly competitive market, there are many small firms producing homogeneous products and no single firm has the power to influence the price or supply of the market. This leads to an efficient allocation of resources and no deadweight loss. In contrast, the other market structures (monopoly, oligopoly, and monopolistic competition) are associated with some degree of market power, which can result in inefficient outcomes and deadweight loss. Monopolies can charge higher prices than in a competitive market, oligopolies can collude to restrict output and raise prices, and monopolistic competition can lead to excessive product differentiation and advertising, which can lead to higher prices for consumers.

Question 3

The threat of a corporate takeover will help prevent lazy monopolist behavior and lead managers to run more efficient,more profitable firms in order to prevent being taken over.Wouldn't a more efficient,more profitable firm be even more inviting for a corporate takeover? Explain why not.

Accepted Answer

The answer of The threat of a corporate takeover will...

Question 4

Network externalities:
A)increase the likelihood that an industry will become a winner-take-all industry.
B)increase competition among existing firms in a market.
C)weaken forces that lead to monopoly in an industry.
D)promote the entry of new firms in a market.

Accepted Answer

Network externalities create a situation where the value of a product or service increases as more people use it. This can lead to a winner-take-all market where the dominant firm captures a large share of the market and has a significant competitive advantage over its rivals. Therefore, network externalities increase the likelihood that an industry will become a winner-take-all industry.

Question 5

Distinguish two uses of the word competition,and relate that discussion to Peter Thiel's statement that competition is for losers.

Accepted Answer

The answer of Distinguish two uses of the word competition,and...

Question 6

Describe two things firms do to try to break up a monopoly.Give an example of each.What can monopolists do to try to keep other firms from taking away some of their markets?

Accepted Answer

The answer of Describe two things firms do to try...

Question 7

Define X-inefficiency and explain how the threat of takeovers helps to limit X-inefficiency.

Accepted Answer

The answer of Define X-inefficiency and explain how the threat...

Question 8

The technological lock-in argument suggests that:
A)it is inefficient to try and adapt to new technology.
B)more efficient technologies always immediately replace less efficient technologies.
C)many of our institutions and technologies may be inefficient but are ingrained regardless.
D)existing institutions and technologies are always the most efficient.

Accepted Answer

The technological lock-in argument suggests that many of our institutions and technologies may be inefficient but are ingrained regardless. This means that even if a more efficient technology is available, it may be difficult to replace the existing technology due to factors such as infrastructure, user habits, or institutional procedures. Therefore, it is important to carefully consider the potential for lock-in when adopting new technologies.

Question 9

Briefly describe the monitoring problem as it applies to the managers of corporations.Why is this problem so severe in large corporations?

Accepted Answer

The answer of Briefly describe the monitoring problem as it...

Question 10

Explain why X-inefficiencies are often associated with lazy monopolists.In your answer,make sure you define a lazy monopolist and X-inefficiency.

Accepted Answer

The answer of Explain why X-inefficiencies are often associated with...

Question 11

Explain how owners can try to deal with the monitoring problem by using incentive-compatible contracts.Is tying managerial compensation to annual profit a sure-fire solution to the monitoring problem? Why or why not?

Accepted Answer

The answer of Explain how owners can try to deal...

Question 12

Describe two market mechanisms that may serve to enhance efficiency and limit the lazy monopolist problem.Can efficiency be achieved by incentives other than profit?

Accepted Answer

The answer of Describe two market mechanisms that may serve...

Question 13

If one were to observe the short-run behavior of a typical American business enterprise,you might fail to see the profit-maximizing behavior assumed by economists.Suggest two reasons for this.

Accepted Answer

The answer of If one were to observe the short-run...

Question 14

Economists often describe competition as a market structure.Why do they also think of competition as a process?

Accepted Answer

The answer of Economists often describe competition as a market...

Question 15

Soda companies pay universities for the exclusive right to sell their products on campus. For example, the University of Buffalo agreed to sell only Pepsi on campus in exchange for $220,000 per year. This agreement:
A)is beneficial for students because they no longer have to make a choice about which soda to purchase.
B)is beneficial for students if Pepsi charges a monopoly price on campus.
C)may be beneficial for students, depending on how the university uses the $220,000.
D)is harmful to students because the extra money gained by the university cannot be used for their benefit.

Accepted Answer

The agreement between the University of Buffalo and Pepsi may be beneficial for students, depending on how the university uses the $220,000. If the university uses the money to improve campus resources or reduce tuition fees, then it would be beneficial for students. However, if the university uses the money for unrelated expenses, then the agreement may not be advantageous for students. The other answer choices are incorrect because students should have a choice in what they purchase, Pepsi may charge monopoly prices, and the money gained from the agreement can be used for student benefit if the university chooses to do so.

Question 16

Define X-inefficiency and explain how the threat of takeovers helps to limit X-inefficiency.

Accepted Answer

The answer of Define X-inefficiency and explain how the threat...

Question 17

What are the implications of the monitoring problem for economic analysis?

Accepted Answer

The answer of What are the implications of the monitoring...

Question 18

What is the monitoring problem as it applies to corporate management? What are some potential solutions for this problem?

Accepted Answer

The answer of What is the monitoring problem as it...

Question 19

The cost of dispensing fluoxetine (the generic for Prozac)is about $5 to $10 per prescription, but the consumer's price at most pharmacies is about $85. This suggests that the market for prescription drugs is:
A)perfectly competitive.
B)a pure monopoly.
C)something that cannot be explained by economic theory.
D)not very competitive.

Accepted Answer

The large markup between the cost of dispensing fluoxetine and the consumer price at most pharmacies suggests that the market for prescription drugs is not very competitive. This may be due to factors such as patent protections, limited competition among drug manufacturers, and complex regulations.

Question 20

What is the monitoring problem,and how does it relate to the standard economic model of the firm?

Accepted Answer

The answer of What is the monitoring problem,and how does...

Quiz 16: Real-World Competition and Technology

Network externalities can:

Using the basic supply/demand framework, economic analysis of market structure leads to the conclusion that:

The threat of a corporate takeover will help prevent lazy monopolist behavior and lead managers to run more efficient,more profitable firms in order to prevent being taken over.Wouldn't a more efficient,more profitable firm be even more inviting for a corporate takeover? Explain why not.

Network externalities:

Distinguish two uses of the word competition,and relate that discussion to Peter Thiel's statement that competition is for losers.

Describe two things firms do to try to break up a monopoly.Give an example of each.What can monopolists do to try to keep other firms from taking away some of their markets?

Define X-inefficiency and explain how the threat of takeovers helps to limit X-inefficiency.

The technological lock-in argument suggests that:

Briefly describe the monitoring problem as it applies to the managers of corporations.Why is this problem so severe in large corporations?

Explain why X-inefficiencies are often associated with lazy monopolists.In your answer,make sure you define a lazy monopolist and X-inefficiency.

Explain how owners can try to deal with the monitoring problem by using incentive-compatible contracts.Is tying managerial compensation to annual profit a sure-fire solution to the monitoring problem? Why or why not?

Describe two market mechanisms that may serve to enhance efficiency and limit the lazy monopolist problem.Can efficiency be achieved by incentives other than profit?

If one were to observe the short-run behavior of a typical American business enterprise,you might fail to see the profit-maximizing behavior assumed by economists.Suggest two reasons for this.

Economists often describe competition as a market structure.Why do they also think of competition as a process?

Soda companies pay universities for the exclusive right to sell their products on campus. For example, the University of Buffalo agreed to sell only Pepsi on campus in exchange for $220,000 per year. This agreement:

Define X-inefficiency and explain how the threat of takeovers helps to limit X-inefficiency.

What are the implications of the monitoring problem for economic analysis?

What is the monitoring problem as it applies to corporate management? What are some potential solutions for this problem?

The cost of dispensing fluoxetine (the generic for Prozac) is about $5 to $10 per prescription, but the consumer's price at most pharmacies is about $85. This suggests that the market for prescription drugs is:

What is the monitoring problem,and how does it relate to the standard economic model of the firm?