Author Question: Assume that we are concerned about the existence of one firm (monopoly) in a market because of the ... (Read 44 times)

Yolanda

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Assume that we are concerned about the existence of one firm (monopoly) in a market because of the potential for economic profits. If, however, there is free entry and exit, should our concerns change? Why or why not?
 
  What will be an ideal response?

Question 2

In the 1970s a typical college student's consumption might be represented by the following items: a small used car, black and white television set, macaroni and cheese and generic brand beer.
 
  As many of these students graduated from college what do you expect happened to the composition and quantity of the goods mentioned? Explain.



juicepod

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Answer to Question 1

Yes. If a market is contestable the firm cannot use its monopolistic position because the profits will entice entry, which will force the firm to lower its price.

Answer to Question 2

In all likelihood the consumption of these items either dropped off dramatically or disappeared altogether. The reason is that these items are what economists would classify as inferior goods. As these college students graduated and started to earn more income their demand for these goods fell. It is likely that the composition of goods in their bundle would move towards more normal goods.



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