Application Exercise 4h:
1) This completed table provides a guide only. It is not expected that students will arrive at neither precisely the same numbers nor the exact same conclusions.
Questions 1-4 are answered within the label below:
Questions 1-4 are answered within the label below:
- Businesses operating in the market for bananas are less likely to be making super-normal profits because the relatively high number of competitors will always be exerting downward pressure on prices and therefore profits. In addition, new entrants are likely to enter the market in the event that high profits appeared to be made by existing operators. This will once again exert downward pressure on prices and profits. In contrast, the companies operating in the domestic airline market are more likely to be making super-normal profits because there are few competitors that can more easily collude and the relatively high barriers to entry make it more difficult for new entrants to enter the market for a slice of the super-normal profits that might be made.
- The government could decide to make it more difficult for two or more companies to merge as one entity. In addition, the government increase the fines payable by those companies found to be engaging in anti competitive behavior (such as price fixing or predatory pricing).
- Depends on research conducted by the student.
- Depends on research conducted by the student.