Suppose That an Economy Wants to Eliminate the Resource Waste

question 56

Multiple Choice

Suppose that an economy wants to eliminate the resource waste associated with excess capacity in monopolistically competitive markets.Which of the following would achieve this goal?

• A)Firms are allowed to establish significant barriers to entry.
• B)Firms are encouraged to produce less output.
• C)Firms are required to set price equal to marginal cost.

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Definitions:

Junk Bond

A high-risk, high-yield bond issued by companies considered to be at greater risk of defaulting on their debt obligations.

Corporate Bond

A debt security issued by a corporation to raise funding, offering periodic interest payments and the return of the principal at maturity.

Default

The failure to meet the legal obligations of a loan, such as not making the agreed-upon payments.

Financial Intermediation

A process where financial institutions serve as intermediaries between savers and borrowers, facilitating the flow of funds in the economy.