Assume a Hypothetical Case Where an Industry Begins as Perfectly

question 245

Multiple Choice

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly.Which of the following statements comparing the conditions in the industry under both market structures is true?

• A)A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good.
• B)A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good.
• C)A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.
• D)A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good.

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Definitions:

Endowment Effect

A mental prejudice in which individuals attribute higher worth to items simply because they possess them.

Prospect Theory

A behavioral economic theory that describes how people make decisions between probabilistic alternatives that involve risk, where the outcomes are known.

Identical Item

A product or object that is exactly the same in every aspect as another, with no variations.

Status Quo Bias

The preference for the current state of affairs, where changes are resisted even when better options are available.