Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?
a. The appropriability effect (the increase in consumers surplus following entry is not appropriated by entrants).
b. The feedback effect (an increase in the number of firms increases the competitiveness of the market).
c. The business-stealing effect (entry reduces rival firms' profits, a social loss that entrants do not account for).
d. The ratchet effect (the more profits the entrants earn, the more the stockholders expect them to earn in the future).
Question 2
An example of moral hazard is
a. workers working diligently even though the boss is not looking
b. health care insured dieting and exercising
c. drivers of safer cars texting on their phones while driving
d. borrowers investing their loan proceeds exactly as the bank requires
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