Suppose That It Is Relatively Easy for New fiRms to Enter

question 42

Multiple Choice

Suppose that it is relatively easy for new firms to enter an industry. Some of the firms in this industry want to form a cartel. Which of the following is likely to be true?

• A) It would be relatively easy for the firms to form a cartel.
• B) The market power of the cartel is likely to be low.
• C) The industry exhibits substantial economies of scale.
• D) The marginal cost of production in this industry is likely to be low.

---

Definitions:

Arbitragers

Individuals or entities that attempt to profit from price differences of the same or similar financial instruments, on different markets or in different forms.

Market Inefficiency

A condition where all available information is not fully incorporated into asset prices, leading to opportunities for higher returns.

Siamese Twin Companies

Companies listed in different countries that share an operational business but trade separately on the stock exchange.

Equity Carve-Outs

A type of corporate restructuring where a company creates a new, independent company by selling or distributing new shares of its existing division or subsidiary.