Give a discussion from the economies of scale perspective on the statement “trade need not be the result of comparative advantage”. And derive the relationship between the number of firms (n) and the price each firm charges (P) for the model of monopolistic competition. [Hint: P = c + 1/ (b * n); c is the marginal cost; b is a positive constant term representing the responsiveness of a firm’s sales to its prices]
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Give a discussion from the economies of scale perspective on the statement “trade need not be the result of
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- Suppose button industry is characterized by monopolistic competition with external economy. China is currently the dominant producer of buttons. Explain why Vietnam may find it difficult to compete with China in a button industry even if Vietnam has lower average cost as a function of the size of the industrySince you know all about perfect competition, monopoly, and oligopoly, we can find out how various types of firms might feel about uncertainty concerning the prices of its factors of production and output. Consider a profit-maximizing firm that produces a single good from several factors. The firm is characterized by a production function y = f(x1, ... , Xn), where y is the level of output obtainable from factor inputs x1, ... , Xn. We will use p to denote the price of the output good, and Wi to denote the price of factor input i. When there is uncertainty a priori about these prices, the firm is allowed to choose its production plan after any uncertainty in prices resolves. (c) Finally, consider this question in the context of a von Stackelberg duopoly. Two firms produce an undifferentiated commodity for which demand is given by P = A - X, where P is price and X is total supply. Demand-is unchanging. Each firm has production technology with a fixed cost F for producing anything at…According to the textbook, which of the following statements is (are) correct? (x) As new firms enter a monopolistically competitive market, product diversity in the market increases, however, profits of existing firms decrease since demand for the products of those firms decreases as they lose customers to the new entering firms. (y) The product-variety externality associated with monopolistic competition arises because in markets that are monopolistically competitive markets, firms try to differentiate their products. (z) When the loss from a business-stealing externality exceeds the gain from a product-variety externality, there are likely to be too many firms in a monopolistically competitive market.
- Because ease of entry is high in both perfect competition and monopolistic competition markets, and because making economic profits will always attract new producers (entrants), how do firms survive and make profits in those markets? Provide an example of a firm or a small business from the real world that is surviving the dynamic nature of monopolistic competition and discuss some approaches they have used (or are currently using) to compete and survive in the market. In addition, provide an example or a scenario from your personal (or professional) experience, an observation, a story that you have read, or an idea or a thought that you might have for practical, creative, and/or effective ways to minimize production costs in order to maximize profits.Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand function: P=200− Q A − Q B where Q A and Q B are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are TC A =1,500+55 Q A + Q A 2 TC B =1,200+20 Q B +2 Q B 2 Assume that the firms form a cartel to act as a monopolist and maximize total industry profits (sum of Firm A and Firm B profits). In such a case, Company A will produce units and sell at . Similarly, Company B will produce units and sell at . At the optimum output levels, Company A earns total profits of and Company B earns total profits of . Therefore, the total industry profits are . At the optimum output levels, the marginal cost of Company A is and the marginal cost of Company B is . The following table shows the long-run equilibrium if the firms act independently, as in the Cournot model…Consider a "Betrand price competition model" between two profit maximizing widget producers say A and B. The marginal cost of producing a widget is 4 for each producer. Each widget producer has a capacity constraint to produce only 5 widgets. There are 8 identical individuals who demand 1 widget only, and individuals value each widget at 6. If the firms are maximizing profits, then which of the following statement is true: a) Firm A and Firm B will charge 4 b) Firm A and Firm B will charge 6 c) Firm A and Firm B will charge greater than or equal to 5 d) None of the options are correct. Explain clearly.
- Consider the welfare effects when the industry operates under a competitive market versus a monopoly. On the monopoly graph, use the black points (plus symbol) to shade the area that represents the loss of welfare from a monopoly, or deadweight loss. That is, show the area that was formerly producer surplus or consumer surplus and now does not accrue to anybody. Deadweight loss occurs when a monopoly controls a market because the resulting equilibrium is different from the competitive outcome, which is efficient. In the following table, enter the price and quantity that would arise in a competitive market; then enter the profit-maximizing price and quantity that would be chosen if a monopolist controlled this market. Market Structure Price Quantity (Dollars) (Hot dogs) Competitive Monopoly Given the summary table of the two different market structures, you can infer that, in general, the price is higher under a (competitive market or…Consider a market for crude oil production. There are two firms in the market. The marginal cost of firm 1 is 20, while that of firm 2 is 20. The marginal cost is assumed to be constant. The inverse demand for crude oil is P(Q)=200-Q, where Q is the total production in the market. These two firms are engaging in Cournot competition. Find the production quantity of firm 1 in Nash equilibrium. If necessary, round off two decimal places and answer up to one decimal place.A community's demand for monthly subscription to a streaming music service is shown by the following table. Assume that there are only two firms serving this market (Firm A and Firm B), each firm offers the same quality of service and music selection, and that each firm’s marginal cost is constant and equal to 0 (zero). (please refer to table provided) If this market were highly competitive instead of a duopoly, the quantity of streaming movie subscriptions purchased each month would be ______ If the two firms agreed to each supply one half of the quantity a monopoly would supply, the contract would specify that each firm would supply ____
- Which of the following is shared by both monopolistically competitive markets and prefectly competitive markets?The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring would be to Multiple Choice make sure that each member country is producing at an output level at which price equals marginal cost. make sure all the member countries produce at least their quotas so that there will be no oil shortage. detect those member countries that are depressing prices by producing more than their assigned quotas. make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.Suppose that two Japanese companies, Hitachi and Toshiba, are the sole producers (i.e., duopolists) of a microprocessor chip used in a number of different brands of personal computers. Assume that total demand for the chips is fixed and that each firm charges the same price for the chips. Each firm’s market share and profits are a function of the magnitude of the promotional campaign used to promote its version of the chip. Also assume that only two strategies are available to each firm: a limited promotional campaign (budget) and an extensive promotional campaign (budget). If the two firms engage in a limited promotional campaign, each firm will earn a quarterly profit of $14 million. If the two firms undertake an extensive promotional campaign, each firm will earn a quarterly profit of $11 million. With this strategy combination, market share and total sales will be the same as for a limited promotional campaign, but promotional costs will be higher and hence profits will be lower.…