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How can the pursuit of market power lead to the social good? A) It always leads to the lowest prices for the customers
How can the pursuit of market power lead to the social good? A) It always leads to the lowest prices for the customers. (incorrect answer) B) It can lead to innovation. C) It leads to less product differentiation. D) It can lead to price discrimination
Which of the following is NOT a result of the network effect? A) Facebook is more valuable to a person the more friends use it. B) eBay is more valuable to a buyer the more sellers there are. (incorrect answer) C) eBay is more valuable to a seller the more buyers there are. D) ?Network effects? tend to limit the size of the firm.
Expert Solution
- Market power relates to the capacity of a firm to concentrate on profitably increasing the market price of the products. It does not exist in perfectly competitive markets and thus leads to innovation. (Correct answer: B)
- Network effect focuses on explaining the effect of an additional user of services and goods on the value of a particular product to the other users. When the impact of a network exists, the value of services and goods aim to increase based on the number of users. Thus, it does not limit the size of the firm. (Correct answer: D)
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