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.

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Definitions:

Hypothalamus-Pituitary-Adrenal Cortex

A major part of the endocrine system that controls reactions to stress and regulates many body processes including digestion, the immune system, mood and emotions.

Hormonal-Pubertal-Adrenal Circuit

A system involving the interaction of hormones associated with puberty and the adrenal glands, affecting physical development and stress responses.

Hippocampus-Pituitary-Amygdala Circuit

A neural pathway involved in the stress response and emotional regulation, linking the hippocampus, pituitary gland, and amygdala.

Stress-Related Illness

Health problems, either physical or psychological, that are influenced or caused by stress.