Competitions Concepts: Indicate whether each of the following statements is true

Question

Competitions Concepts: Indicate whether each of the following statements is true or false and why.




A.


A high ratio of distribution cost to total cost tends to increase competition by widening the geographic area over which any individual producer can compete.



B.


The price elasticity of demand will tend to fall as new competitors introduce substitute products.



C.


Equilibrium in monopolistically competitive markets requires that firms be operating at the minimum point on the long-run average cost curve.



D.


An increase in product differentiation will tend to decrease the slope of firm demand curves.



E.


A perfectly functioning cartel would achieve the perfectly competitive industry price-output combination.

Explanation / Answer

Answer:

A) False
Reason:

As production cost and total cost here is very high.Moreover,competition would decrease.

B) True
Reason:

Because substitute products being launched would be given a priority by people thereby making price elasticity of demand to fall.

C) True
Reason:

As costs are at a minimum so it is possible.

D) True
Reason:

As increase in differentiation will tend to decrease the slope of firm demand curves.

E) True
Reason:

As a perfectly functioning cartel would regulate pricing,production and marketing by its members literally.

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