Question

Suppose that it requires a special license in order to operate a firm in a certain type of industry. In addition, suppose that firms that hold such licenses are able to sell them for a high price. Which of the following statements is true? Select one: a. This is a typical monopolistically competitive market in which there are no economic profits in the long run. b. There is free entry by new firms into this industry. c. The government that issued the original licenses will be willing to issue more. d. Most firms currently in the industry are earning economic profits.

2.

Which of the following statements is correct regarding an individual firm which obtains its labour in a perfectly competitive labour market?

Select one:

a. It faces a downward-sloping labour demand curve and a horizontal labour supply curve.

b. It faces a horizontal labour demand curve and a upward-sloping labour supply curve.

c. It faces an upward-sloping labour demand curve and a downward-sloping labour supply curve.

d. It faces a downward-sloping labour demand curve and a upward-sloping labour supply curve.

3.

If external benefits are not integrated into the market, insufficient quantities of a product will be produced.

Select one:

True

False

Answer 1

1) Under the given situation, there is barriers to entry into the market and the firms are price makers selling the product at high price and earning super normal profits. The industry described best matches oligopoly. Hence most firms currently in the industry are earning economic profits. The answer is option (d).