Question

1- Monopolies:

a) earn the profits needed for research and development and have the strongest incentive to innovate.

b) may earn the profits needed for research and development, but they seldom have the incentive to innovate.

c) seldom earn the profits needed for research and development, but they have the strongest incentive to innovate.

d) seldom earn the profits needed for research and development and have no incentive to innovate.

2- Once a company like Microsoft has achieved market domination:

a) the chances of a competitor winning the business of dissatisfied customers will increase, making continued market domination unlikely.

b) antitrust laws will automatically force the company to break up.

c) the commitment by consumers to the industry standard created by Microsoft makes it very difficult for other firms to compete.

d) it is very unlikely to attempt further innovation.

Answer 1

1. b) May earn the profits needed for research and development, but they seldom have the incentive to innovate.

Monopolies can use their profit to invest in new products and technologies that benefit consumers in the long run. Higher monopoly power means higher opportunity costs, so less incentive to innovate.

2. c) The commitment by consumers to the industry standard created by Microsoft makes it very difficult for other firms to compete.

Market dominance is the ultimate measure of success. Customer commitment is a strategic concern which plays a major role to achieve market dominance. It is the intention of a customer to maintain a long-term relationship with a supplier. So once the firms have built such an relationship, it will be difficult for the competitors.