Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?
A) Even though concentration is high, large firms in the industry may act competitively by spending large sums on advertising.
B) The high concentration may be due to patents owned by the largest firms but competition will increase when patent rights expire.
C) The threat of entry into this industry can cause firms in the industry to lower their prices and profits in order to deter entry.
D) If high concentration is the result of large firms owning much of the available supply of a key input, the industry will become more competitive when new sources of the input are discovered by other firms.
Question 2
Suppose the price of capital and labor remain constant. As a firm's expenditures for capital and labor increase, its isocost line
A) rotates outward on the Y-intercept. B) shifts in parallel to the original isocost line.
C) rotates outward on the X-intercept. D) shifts out parallel to the original isocost line.
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