4.07 Imperfect Competition Part A

Q. The government of a small country is trying to encourage competition in the market for product X and offers a significant per-unit subsidy. However, it fails to incentivize an increase in competition. Which of the following could explain this scenario? (2 points)

The price elasticity of demand is very high.

A per-unit subsidy does not change output decisions.

No firm in the industry has market power.

The firms in the market are selling indistinguishable units of product X.

There are insurmountable barriers to entry into the market.

Q. Deniques Limited is the only provider of sophisticated medical equipment in Farland. It perceives the demand curve it faces to be the same as the market demand curve. If its demand is represented by P = 100 ? 2Q, which of the following is correct about Deniques Limited? (2 points)

An increase in the price decreases economic losses.

A decrease in price decreases the quantity sold.

A decrease in price increases the quantity sold.

Higher levels of output bring in increasingly lower total revenue if demand is elastic.

Maintaining the current price decreases the quantity sold over time.

Q. The minimum efficient scale for a good is beyond the point of output where marginal cost intersects the demand curve. This describes (2 points)

diseconomies of scale

a legal monopoly

market power

comparative advantage

a natural monopoly

Q. What would be the area of this firm's economic profits or economic losses?

Company B Retail outlets No retail outlets Company A Retail outlets $25, $25 $30, $15 No retail outlets $35, $35 $34, $20