What are the differences between competition in a purely competitive industry and competition in an industry with technological advance and innovation?
What will be an ideal response?
In pure competition, if an industry is earning above-normal profits, then firms will enter and copy the production methods and increase output that eventually drives down price until it equals average total cost. There is no dynamism or innovation in this industry. In innovative industries, firms will enter and try to reduce costs to increase profits or develop new products that attract buyers and increase revenue to increase profits. Even in these innovative industries, competition works to constantly push down above-normal profits because other firms can copy the lower-cost production methods and can develop attractive alternatives to new products.
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Which of the following is blamed for the lack of increased business investment spending on new factories and machinery during the 1930s?
(a) The new presence of government's large-scale economic activity caused business to lose some of its former confidence. (b) The general outlook stressed caution. (c) A much lower rate of population growth and family creation depressed the housing market. (d) All of the above.
What is allocative efficiency?
A) It refers to a situation in which resources are allocated to their highest profit use. B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. D) It refers to a situation in which resources are allocated fairly to all consumers in a society.