Indicate if the following statements are True or False.
1. A natural monopoly is a monopoly that uses the ownership of natural resources as a barrier to entry.
2. When firms cooperate with one another consumer's surplus always increase.
3. In monopolistic competition, marginal revenue is less than the price at the optimal production level.
4. Advertising is socially wasteful because it simply adds to the cost of production.
5. An oligopoly is a market structure in which many firms sell products that are similar but not identical.
6. In the competitive market, the individual output of every firm is the minimum efficient scale of production in the long-run.
7. Firms are willing to pay more for workers with higher marginal product.
8. An increase in the demand for pencils will likely improve the fortunes of both the pencil manufacturers and the workers in the pencil industry.
9. In the presence of any externality, introducing a corrective tax always reduces deadweight loss.
10. If there is a difference in wages among workers, that's evidence of discrimination in the workplace.
Market and Business Structure in Competition
Markets and industries are usually categorized as monopolistic, competitive, or as oligopolies. Each firm has different characteristics, and is also affected by different tax structures.
Answer and Explanation:
1. True, monopolies have control over valuable resources and create barriers to keep firms from entering.
2. False, firms collude and cooperate on prices, however that does not mean consumer surplus is created. Consumer demand can be created if the firms set prices at levels lower than what customers are willing to pay.
3. False, marginal cost should always equal marginal revenue. Prices should cover the marginal cost used to produce the good.
4. False, advertising can prove beneficial if the cost of advertising does not exceed the additional revenue generated from the ads.
5. True, Oligopolies like the tobacco industry and gasoline all sell almost identical products but are not exactly the same.
6. True, in the long run the individual output is the minimum amount to scale production over time.
7. True, higher marginal products in workers are ideal since it will cover costs.
8. False, owners of production may see their fortunes grow, but for laborers in the industry, their wages may not necessarily increase just from increased demand.
9. True, a deadweight loss forms from market inefficiency created by a tax.
10. False, differences in wages can be from levels of experience, skills, or tenure.
Learn more about this topic:
from Business Analysis TrainingChapter 4 / Lesson 7