Question

QUESTION 7

Which of the following is NOT an assumption of perfect competition:

    a.   There are no barriers to entry.

    b.   All firms have access to the same technology and input factors.

    c.   All firms pay the same price for input factors (and if quantity discounts apply, all firms buying the same input quantity face the same price).

    d.   Firms try to push competitors out of the market by setting the price of the product they sells at a level that is lower than the competitors’ price.

    e.   There are no barriers to exit.

    f.   Consumers are small in the sense that they cannot individually affect the market, so they behave as price-takers.

QUESTION 8

If electricity retailing is a natural monopoly in a particular location, a regulatory agency could improve economic efficiency by:

    a.   Introducing competition by allowing entrant firms to use the incumbent firm’s distribution network, after paying a regulated fee equivalent to the marginal network usage cost.

    b.   Capping the electricity price.

    c.   Regulating the business’ rate of return.

    d.   All of the above.

Answer 1