Suppose There Is Only One Producer of Frames, a Necessary

question 96

Multiple Choice

Suppose there is only one producer of frames, a necessary component in manufacturing computer monitors.Because of the threat of entry, this firm charges its customers a price equal to average cost.One reason that a producer of computer monitors may make rather than buy frames is

• A)the frame supplier may be unreliable
• B)the total cost of the components of frames is the same as the price of frames purchased in the market
• C)the frame manufacturer has no incentive to make high-quality frames
• D)managers at the computer monitor firm place a high value on their time
• E)the frame manufacturer will soon go out of business because firms do not produce goods for the market that can be made in-house

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Definitions:

Linear Demand Curve

A graphical representation showing a straight-line relationship between the quantity demanded of a good and its price.

Price Elasticity

A measure of the sensitivity of demand for a product in response to a change in its price.

Perfectly Elastic Demand

The case in which any price increase will cause the quantity demanded to drop to zero; the demand curve is a horizontal line.

Demand Curves

Graphical representations showing the quantity of a particular good that consumers are willing to buy at different price levels, assuming other factors remain constant.