For years, economists believed that market structure explained ...

[mckennatimberlake]

For years, economists believed that market structure explained the ability of some firms to earn economic profits.
 
  For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers. Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?
  A) In recent years, new technologies have increased the potential entry of new firms in industries with high entry barriers.
  B) Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition.
  C) The market structure explanation fails to explain how firms in the same industry can have very different levels of profit.
  D) Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands.

Question 2

What are inventories? What usually happens to inventories at the beginning of a recession, and what usually happens to inventories at the beginning of an expansion?
 
  What will be an ideal response?

[nhea]

Answer to Question 1

C

Answer to Question 2

Inventories are goods that have been produced but not yet sold. Inventories rise at the beginning of a recession and fall at the beginning of an expansion.