Karen Parker wants to establish an environmental testing company that would specialize in evaluating the quality of water found in rivers and streams. However, Parker has discovered that she needs either certification or approval from five separate local and state government agencies before she can commence business. Also, the necessary equipment to begin would cost several million dollars.However, Parker believes that if she is able to obtain capital resources, she can gain market share from the two major competitors.The market structure Karen Parker is attempting to enter is best described as:
Answer(s): C
Choice "c" is correct. Major competitors and substantial capital requirements (high barriers to entry) are oligopolistic market conditions.Choice "a" is incorrect. Pure competition has small barriers to entry and numerous suppliers. Choice "b" is incorrect. A natural monopoly suggests that economic conditions allow only one supplier for efficiency purposes.Choice "d" is incorrect. Monopolistic competition has easier barriers to entry and more firms competing to supply the market than oligopoly.
Any business firm that has the ability to control the price of the product it sells:
Answer(s): A
Choice "a" is correct. Any business firm that has the ability to control the price of the product it sells faces a downward-sloping demand curve for the firm. Only the firm in a competitive market is a price-taker facing a horizontal demand curve at the market equilibrium price. Choice "b" is incorrect. Firms in competitive industries have no entry or exit barriers and are price- takers.Choice "c" is incorrect, this is a far-out distractor.Choice "d" is incorrect. Only firms in perfectly competitive markets (price-takers) face horizontal demand curves.
If a group of consumers decide to boycott a particular product, the expected result would be:
Answer(s): B
Choice "b" is correct. A consumer boycott will decrease demand for the product being boycotted. Choice "a" is incorrect. Increasing price will further reduce the quantity demanded. The effect on revenue is uncertain.Choice "c" is incorrect. Supply will be unaffected by a boycott. Choice "d" is incorrect. A boycott of a particular product will reduce the overall profits of the industry.
In competitive markets, an increase in an effective minimum wage will:
Answer(s): D
Choice "d" is correct. When the "minimum" wages are increased, employers may elect to hire fewer employees thereby increasing unemployment.Choice "a" is incorrect. An increase in the minimum wage will have an effect on the demand for labor.Choice "b" is incorrect. The supply of labor will likely go up as the wage being paid increases. Choice "c" is incorrect. As the minimum wage increases, unemployment will increase.
In a competitive market, an increase in the minimum wage will likely have the following effects:
Choice "c" is correct. With an increase in the minimum wage, total employment will likely decrease in affected industries and generate unemployment. Employers will demand a smaller number of workers while a larger number of workers will be attracted by the higher wage. Choice "a" is incorrect. Firms currently paying above the new minimum wage would generally be unaffected, not raise their pay rates.Choice "b" is incorrect. Firms paying at the current minimum wage rate would attempt to reduce labor, not generally be unaffected.Choice "d" is incorrect. If a marginally cheaper, not more expensive.
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