Explain what will happen if firms in a monopolistically competitive industry are earning positive economic profits
What will be an ideal response?
Positive economic profits will attract new firms into the industry. The new firms will produce a product that is slightly different attracting customers away from existing firms. The demand curves of the existing firms will shift downward until economic profits equal zero.
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Consider the market for peanut butter. If there is an increase in the price of peanuts,
A) there is a decrease in the supply of peanuts. B) there is a decrease in the demand for peanut butter. C) there is an upward movement along the supply curve for peanut butter. D) there is a decrease in the supply of peanut butter. E) the supply curve for peanuts shifts rightward.
Which two factors make regulating mergers complicated?
A) First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. B) First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports) on the degree of competition in the markets of the merged firms. C) First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually. D) First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge.