Economics: Private and Public Choice (MindTap Course List)
15th Edition
ISBN: 9781285453538
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 24, Problem 7CQ
To determine
High barriers to entry.
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QUESTION 2:
Consider a competitive market. There are X number of firms in this market. Every firm is facing the following set up:
a. How does the number of firms in the industry, affect each firm's demand curve? Why?
b. What will be the production in this market? What price will the companies charge? How much profit will firms make?
c. What is the minimum number of firms in the market so that everyone is making losses?
d. How many firms will exist in this market in the long-run?
Suppose that we have a perfectly competitive market with inverse market demand P = 1000-10Q and inverse market supply P =
250+5Q.
A. What is the equilibrium price and quantity in this market?
B. Suppose the market is populated by identical firms whose total costs are TC = 100+4000 + 250² and whose marginal
costs are MC = 400 + 50Q. How much output should each firm produce in the short run?
C. What are each firm's profits?
D. How many firms are there currently in the market? What do you think will happen to the number of firms in the long run?
Market Structures...
Economists try to identify market structures in order to understand how firms and consumers behave. We
characterize market structures by the number of buyers or sellers who are present, by the relative ease
with which a new seller may enter the market, by the variation in the product from one supplier to the
next, and by the amount of competition present.
Perfect Competition
Perfect competition is the most competitive market structure. A market with perfect competition has a
large number of buyers and sellers. In this type of market, there are no barriers to entry or exit, which
means a new seller will have a fairly easy time if he wants to start doing business. The product is
homogeneous, in the sense that one bushel of wheat isn't really all that different from any other bushel of
wheat. A perfectly competitive market is also characterized by the availability of perfect information, or
free and equal access for everyone to information about the product, its…
Chapter 24 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- The following graph shows the demand curve for a good and the long run average cost curve for a typical firm in this market. If the government does not intervene in the market, then Question 4 options: there will be many firms in this market, all of whom will take the market price as given and produce where price equals marginal cost there will only be 1 firm in this market, and they will produce where marginal revenue equals marginal cost there will only be 1 firm in this market, and they will take the price as given and produce where price equals marginal cost no firms will enter this marketarrow_forwardAnswer the following questions. 1. In the year 2000, the town of Cuenca in Batangas did not have mountain resorts. Because of the influx of mountaineers to Mount Maculot during weekends, there are now five resorts operating in the said town and more than 10 resorts in nearby towns. All these resorts offer the same amenities-swimming pools and affordable lodgings. What feature of competitive markets does this demonstrate? Explain your answer.arrow_forwardQuestion 4 Many companies reward their managers based on profits so that the managers will make decisions to maximize profits. However, some companies are paying their managers based on sales or revenue, instead of profits, so their managers will make decisions to maximize revenue. For example, at Reebok, the former CEO Paul Fireman received a nickel for every pair of shoes sold. a. Suppose that there are two existing firms in the market competing in quantity. Ignore market uncertainty and long-run competition. Firm B's manager is always paid based on firm B's profits. Firm A has been paying its manager based on profits but now changes to pay the manager solely based on revenue. Each manager chooses the production level (quantity) for his firm simultaneously. Is it possible for the above change in firm A's compensation system to increase firm A's profits? What are the direct effects and strategic effects on firm A's profit? Explain. Direct Effect (Circle one): Positive Negative…arrow_forward
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