Economics Homework Nine Answers - Student Three

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Anna M


2. Order the types of industries from those having the lowest price (due to the greatest competition) to those having the highest price (due to the least competition).

(listed from lowest prices to highest prices)

1. Perfect Competition

2. Perfectly Contestable Markets

3. Monopolistic Competition

4. Oligopoly

5. Cartel

6. Monopoly

Excellent!

3. Explain which specific type of industry (e.g., oligopoly or something else) each of these quotes probably refers to: (1) "She's the finest hair stylist in town; no one has her special style!", (2) "Crazy Eddie ... his low prices are INSANE!", (3) "Don't like his prices? He's the only one in town selling what you need."

(1) Monopolistic Competition

(2) Perfectly Contestable Market

(3) Monopoly

Close, but I think (2) is perfect competition. (Minus 1)

4. List how monopolies can be established.

1. Government creates monopolies by operation of law.

2. The licensing of professionals creates a barrier to entry.

3. Control of a valuable resource.

4. Economies of scale can create a monopoly by rewarding the biggest company with the lowest average cost.

5. Government grants of monopoly such as patents and copyrights.

Superb.

5. What prevents a monopoly from increasing its prices without limitation?

People will not pay obscenely high prices, even if it's the only supplier. A monopoly must still sell when MR=MC.

Right.
Well done! 39/40.--Andy Schlafly 20:49, 14 November 2009 (EST)