Question 7 In a monopolistically competitive industry, if one firm finds a profi
ID: 1126545 • Letter: Q
Question
Question 7
In a monopolistically competitive industry, if one firm finds a profitable niche in product space, then:
Barriers to entry will prevent other firms from competing with them, allowing their profits to remain high.
An absence of barriers to entry will enable other firms to create similar products and easily compete away their excess profits.
Barriers to entry will protect their profits in the short term, but in the long term competitors will create similar products and compete away their excess profits.
Even though there are no barriers to entry, the firm that innovates first will continue to earn excess profits over the long haul.
The excess profits of the innovating firm will decline once consumers tire of the good.
1 points
Question 8
Schumpeter believed that monopolies do not last forever because:
As the founding entrepreneur ages the vitality and innovativeness of the firm withers as well.
Sooner or later, new competitors will enter the monopolist's industry and compete away their profits.
Consumers will tire of the monopolist's product, demand will fall, and the profits of the monopolist will decline.
Eventually the monopolist grows too big and bureaucratic and loses control of its market.
Competitors find a way of innovating around the monopolist's market by creating a new product.
1 points
Question 9
An oligopolist in a non-cooperative oligopoly finds it difficult to earn excess profits because:
They must spend too much on research and development activities to keep their customers happy.
They must pay high wages to their workers that reduce their profits.
They have too many competitors.
They engage in self destructive practices like price wars.
They must pay exorbitant salaries to their top corporate officials.
1 points
Question 10
Monopolists can earn excess profits over the long run because:
Barriers to entry prevent potential competitors from entering their industry and competing away their profits.
Consumers are loyal to the monopolist's products and refuse to buy the products of their competitors.
Their competitors are too small to compete effectively with the monopolist.
Their competitors do not know how to produce and sell the monopolist's product.
The monopolist's competitors worry that if they try to compete with the monopolist they will drive them out of business.
Barriers to entry will prevent other firms from competing with them, allowing their profits to remain high.
An absence of barriers to entry will enable other firms to create similar products and easily compete away their excess profits.
Barriers to entry will protect their profits in the short term, but in the long term competitors will create similar products and compete away their excess profits.
Even though there are no barriers to entry, the firm that innovates first will continue to earn excess profits over the long haul.
The excess profits of the innovating firm will decline once consumers tire of the good.
Explanation / Answer
7. In a monopolistically competitive industry, if one firm finds a profitable niche in product space, then: An absence of barriers to entry will enable other firms to create similar products and easily compete away their excess profits. When there are are abnormal profits then new firms will enter in the market till abnormal profits turned into zero economic profits.
8. Schumpeter believed that monopolies do not last forever because: Competitors find a way of innovating around the monopolist's market by creating a new product. This is because when innovation takes place then monopolist cannot earn abnormal profits with its product.
9 An oligopolist in a non-cooperative oligopoly finds it difficult to earn excess profits because: They engage in self destructive practices like price wars. In case of non cooperation each firm actions hurt the profits of other firm.
10.Monopolists can earn excess profits over the long run because: Barriers to entry prevent potential competitors from entering their industry and competing away their profits. This is because monopolist can threat new entrants with excess capacity and still earn abnormal profits.
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