Firm a Is a Monopoly Because of Network Effects,whereas Firm

question 185

Multiple Choice

Firm A is a monopoly because of network effects,whereas Firm B is a natural monopoly.Which of the following statements is likely to be true in this context?

• A) The average total costs of both firms decrease as they increase their output.
• B) The value of the product that both firms produce increases with an increase in the number of buyers.
• C) Firm A enjoys a monopoly status because its marginal cost decreases with increase in output, whereas Firm B enjoys a monopoly status because the value of its product increases as more consumers buy it.
• D) Firm B enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm A enjoys a monopoly status because the value of its product increases as more consumers buy it.

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Definitions:

Net Present Value

The calculation that compares the value of money today to the value of that same money in the future, taking inflation and returns into account.

Degree of Operating Leverage

A financial ratio that measures the impact of fixed costs on the profitability of a company, indicating how earnings before interest and taxes (EBIT) change with sales volume.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales, indicating the percentage change in operating income for a one percent change in sales.

Total Revenue

The total amount of income generated by the sale of goods or services related to the company's primary operations.