ECON1001 Study Guide - Quiz Guide: Market Distortion, Externality, Marginal Revenue

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14 Jun 2020
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Which of the following is a barrier to entry? PNGPD
Select one:
a. Established firms
b. Fierce competition
c. Patents
d. All of the above/below
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Competition doesn’t mean you can’t join in! And established firms might be bad at what they are
doingthe market might be ripe for the entry of a disruptive new enterprise, like Uber. Of these
items, only patents represent a barrier to entry.
The correct answer is: Patents
Question 2
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Assuming there are no barriers to entry, what do we expect to happen in the long run in sectors
where firms are making a profit?
Select one:
a. New entrants who increase supply and thereby reduce prices and profits
b. Diminishing demand owing to high prices
c. Gradual monopolisation of the sector by dominant firms
d. More firms to enter and drive total profits even higher
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See slides 7 and 8 of the competition lecture. High profits attract new entrants. This increase
supply. In order to offload the extra Q, all firms must decrease prices. This leads to tightening
profit margins sector-wide.
The correct answer is: New entrants who increase supply and thereby reduce prices and profits
Question 3
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Monopsony is an example of?
Select one:
a. A market distortion
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b. Imperfect competition
c. Externalities
d. Imperfect information
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A monopsony is where a single consumer has strong market power in a sector and consequences
causes it to produce inefficiently low Q at inefficiently low P. It is an example of imperfect
competition (few consumers).
The correct answer is: Imperfect competition
Question 4
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Which of the following is an example of a cartel?
Select one:
a. A fast food store operating as the only employer of low-skill labour in a rural town
b. Each of Australia’s Group of Eight universities effectively acting as the only employer of high-end
academic researchers in their respective cities
c. Black Mountain restaurant operating as the only restaurant in the North of Canberra with a
mountain view
d. US colleges agreeing to pay student athletes close to $0 in the NCAA competition
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Black mountain restaurant is a monopoly. The fast food store is a monopsonist. The Go8
universities are engaged in monopsonist competition (oligopoly). The cartel is the NCAA because
it maintains an equilibrium price purely by agreement.
The correct answer is: US colleges agreeing to pay student athletes close to $0 in the NCAA
competition
Question 5
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Identify the profit maximising level of production (Q) for the monopolist graphed below
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