What is the effect when a foreign competitor's currency becomes weaker compared to the U.S. dollar?
Answer(s): A
Choice "a" is correct. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market.Choice "b" is incorrect. As a foreign competitor's currency becomes weaker compared to the U.S. dollar, the product becomes less expensive in U.S. dollars. The less expensive product will have the advantage in the U.S. market, not a disadvantage.Choice "c" is incorrect. Foreign currency exchange rates impact both sales and possibly cost of goods sold of a competing domestic company. Sales within U.S. markets will deteriorate as the currency of foreign competitors deteriorates and makes the domestic company's goods more expensive. As a foreign competitor's currency appreciates, sales within U.S. markets by a domestic company should also increase as goods manufactured in the U.S. become less expensive. Cost of goods sold may fluctuate if foreign suppliers are used.Choice "d" is incorrect. It is better for a U.S. company when the value of the U.S. dollar weakens, not strengthens. A weak U.S. dollar makes domestic goods relatively less expensive that imported goods.
Compared to firms in a perfectly competitive market, a monopolist tends to:
Choice "a" is correct. Compared to firms in a perfectly competitive market, a monopolist tends to produce substantially less but charge a higher price.Choices "b", "c", and "d" are incorrect, per above Explanation.
Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of:
Answer(s): B
Choice "b" is correct. Patents are an example of entry barriers. Patents prevent other rival firms (without patents) from entering the market and consequently, are a form of entry barriers. Patents can be "process- related" or "product-related."Choices "a", "c", and "d" are incorrect, per above Explanation.
An oligopolist faces a "kinked" demand curve. This terminology indicates that:
Choice "a" is correct. In an oligopoly, each firm faces a "kinked" demand curve. Others will match price cuts, but ignore price increases. The "kink" is at the prevailing price. Best real world examples of oligopoly are the airline and auto industries.Choice "b" is incorrect. An oligopolist's demand curve is linear but "kinked." Above the "kink," demand is highly elastic. Below, very inelastic.Choice "c" is incorrect. An oligopolist cannot sell at any price. There is no "saturation point."Choice "d" is incorrect. A change in quantity demanded indicates a movement along the demand curve, not a shift in the curve.
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