For Years, Economists Believed That Market Structure Explained the Ability

question 166

Multiple Choice

For years, economists believed that market structure explained the ability of some firms to earn economic profits.For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers.Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?

• A)Studies have shown that, on average, firms in competitive industries earn higher profit rates than firms in industries with little competition.
• B)In recent years, new technologies have increased the potential entry of new firms in industries with high entry barriers.
• C)Studies have shown that firms in industries that have little competition and high entry barriers are not very profitable. Economists conclude from this that some competition is necessary in order to force firms to lower their costs and develop products that satisfy new consumer demands.
• D)The market structure explanation fails to explain how firms in the same industry can have very different levels of profit.

---

Definitions:

Moral Development Theory

A framework that explains the evolution of human morality and ethical behavior through different stages of life, primarily associated with psychologist Lawrence Kohlberg.

Preconventional

A stage in Kohlberg's theory of moral development where behavior is motivated by anticipation of pleasure or pain rather than by societal rules or conventions.

Conventional

Pertaining to methods or practices that are widely accepted and used, typically because they have been established over time.

Postconventional

A stage in moral development where individuals make ethical decisions based on universal principles and the greater good, beyond societal norms.