BE 301 Midterm 3 Exam Questions with Correct Answers Latest Update 2025/2026
What are economies of scale? - Answers Per-unit cost falls as output increases due to
specialization, spreading fixed costs, and bulk purchasing.
What is the implication of economies of scale for industry structure? - Answers Industries with
strong economies of scale tend to have fewer, larger firms.
What are economies of scope? - Answers It is cheaper for one firm to produce multiple
products together than separately.
Give an example of economies of scope. - Answers A hotel offering breakfast or an airline
providing freight services.
What is market power? - Answers The ability to successfully charge a price greater than
marginal cost (P > MC).
The ability of a firm to influence the price of a good or service.
How does elasticity relate to market power? - Answers Inelastic demand leads to more market
power, while elastic demand leads to less market power.
When does market power harm consumers? - Answers When the product is a necessity, there
are few/no substitutes, and consumers are 'captive'.
What are the two types of mergers? - Answers Horizontal mergers (same industry) and vertical
mergers (different production stages).
Who reviews mergers in the United States? - Answers The Department of Justice (DOJ), Federal
Trade Commission (FTC), Federal Communications Commission (FCC), Federal Energy
Regulatory Commission (FERC), and state commissions.
What does a high Four-Firm Concentration Ratio (CR4) indicate? - Answers It indicates less
competition in the market.
What HHI value indicates an unconcentrated market? - Answers HHI < 1500.
What happens if HHI is between 1500 and 2500? - Answers Mergers may be challenged if HHI
increases by more than 100.
What characterizes perfect competition? - Answers Many firms, identical products, easy
entry/exit, and firms are price takers.
What is the demand curve for a firm in perfect competition? - Answers It is perfectly elastic
(horizontal) at the market price.
How does a competitive firm maximize profit? - Answers By producing where price equals
What are economies of scale? - Answers Per-unit cost falls as output increases due to
specialization, spreading fixed costs, and bulk purchasing.
What is the implication of economies of scale for industry structure? - Answers Industries with
strong economies of scale tend to have fewer, larger firms.
What are economies of scope? - Answers It is cheaper for one firm to produce multiple
products together than separately.
Give an example of economies of scope. - Answers A hotel offering breakfast or an airline
providing freight services.
What is market power? - Answers The ability to successfully charge a price greater than
marginal cost (P > MC).
The ability of a firm to influence the price of a good or service.
How does elasticity relate to market power? - Answers Inelastic demand leads to more market
power, while elastic demand leads to less market power.
When does market power harm consumers? - Answers When the product is a necessity, there
are few/no substitutes, and consumers are 'captive'.
What are the two types of mergers? - Answers Horizontal mergers (same industry) and vertical
mergers (different production stages).
Who reviews mergers in the United States? - Answers The Department of Justice (DOJ), Federal
Trade Commission (FTC), Federal Communications Commission (FCC), Federal Energy
Regulatory Commission (FERC), and state commissions.
What does a high Four-Firm Concentration Ratio (CR4) indicate? - Answers It indicates less
competition in the market.
What HHI value indicates an unconcentrated market? - Answers HHI < 1500.
What happens if HHI is between 1500 and 2500? - Answers Mergers may be challenged if HHI
increases by more than 100.
What characterizes perfect competition? - Answers Many firms, identical products, easy
entry/exit, and firms are price takers.
What is the demand curve for a firm in perfect competition? - Answers It is perfectly elastic
(horizontal) at the market price.
How does a competitive firm maximize profit? - Answers By producing where price equals
