Which of the following is not a condition of a contestable market?
a.There is easy entry into and costless exit from the market.
b.New firms entering the market can produce the product at the same cost as current firms.
c.Firms exiting the market can easily dispose of their fixed assets by selling them elsewhere.
d.New firms entering the market produce a higher-quality product than existing firms.
52.Which of the following is not a necessary condition for the contestable market theory?
a.There are no barriers to entry.
b.Exit from an industry is costless.
c.All firms in an industry have the same costs of production.
d.All of the above are necessary conditions.
53.According to the contestable markets theory,
a.even if an industry is comprised of a small number of firms, this is not sufficient evidence that the firms perform in a noncompetitive way.
b.profits cannot be zero in an industry if the number of sellers in the industry is small.
c.if a market is contestable, inefficient producers are more likely to survive than if the market is not contestable.
d.b and c
e.a, b, and c
54.How does contestable markets theory challenge orthodox market structure theory?
a.Contestable markets theory argues that firms do not maximize sales; orthodox market structure theory argues that they do.
b.Orthodox market structure theory places much greater weight than contestable markets theory on the number of firms in an industry as a major factor in determining a firm's behavior.
c.Contestable markets theory emphasizes product differentiation; orthodox market structure theory does not.
d.Contestable markets theory emphasizes nonprice competition; orthodox market structure theory does not.
55.The "prisoner's dilemma" game illustrates a case in which
a.individually rational behavior leads to a collectively inefficient outcome.
b.what is irrational individual behavior turns out to be ultra-irrational group behavior.
c.the whole is greater than the sum of the parts.
d.none of the above
56.The assumption that precludes economic profits in monopolistic competition in the long run is that
a.there are many buyers and sellers.
b.the firms produce a homogeneous product.
c.there is easy entry and exit in this market structure.
d.buyers and sellers have all relevant information.
57.The demand curve facing a firm in monopolistic competition is downward sloping, because the firm
a.sells a differentiated product.
b.is the entire industry by itself.
c.is small relative to the market.
d.b and c
e.none of the above
58.In long run equilibrium, a monopolistic competitive firm's price will
a.exceed ATC, but equal MC.
b.exceed both MC and ATC.
c.be less than both MC and ATC.
d.exceed MC, but equal ATC.
59.A monopolistic competitive firm maximizes profits by producing at the point where
a.total revenue is at a maximum.
b.marginal revenue equals average cost.
c.marginal revenue equals marginal cost.
d.price equals marginal revenue.
e.b and d
60.In the long run, new firms will enter a monopolistic competitive industry until
a.minimum average total cost is achieved.
b.all firms are incurring losses.
c.economic profits in the industry are zero.
d.a and b
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