Suppose Alexander is successful in establishing a profitable market for his vegan bakery in what is a monopolistically competitive industry.
In the long run, Alexander will most likely find it ________ to remain profitable as he faces ________ competition in the vegan bakery market.
A) easier; more B) harder; more C) easier; less D) harder; less
Question 2
Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions:
Scenario A: Imagine that you have decided to see a play and paid the admission price of 10 per ticket.
As you enter the theater you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay 10 for another ticket?
Scenario B: Imagine that you have decided to see a play where admission is 10 per ticket. As you enter the theater you discover that you have lost a 10 bill. Would you still pay 10 for a ticket for the play?
As long as additional tickets are available, there's no meaningful difference between losing 10 in cash before buying a ticket, and losing the 10 ticket after buying it. In both cases, you are out 10. Yet, far more subjects (88 percent) in Scenario B say they would pay 10 for another ticket and see the play while in Scenario A, only 46 percent of the subjects say they would be willing to spend another 10 to see the play.
Which of the following is the best explanation for the results of the experiment?
A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B.
B) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost 10 bill and the play.
C) In Scenario B, people had not anticipated spending an additional 10 so in effect the price of the ticket is 20 and not 10 whereas in Scenario A, the price of the ticket is still 10.
D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is 20 compared to the net benefit in Scenario B.
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