Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 7, Problem 8CACQ
To determine
To explain: Whether this industry conforms to a
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Consider a firm that operates in a market that competes aggressively in prices. Due to the high fixed cost of obtaining the technology associated with entering this market, only a limited number of other firms exist. Furthermore, over 70 percent of the products sold in this market are protected by patents for the next eight years. Does this industry conform to an economist’s definition of a perfectly competitive market?
We’ve observed that there are few examples of perfectly competitive markets in the real world, yet we use the model of perfect competition as a comparison with other market structures. Can you think of any examples of monopoly in the real world?Describe something you believe could possibly called a monopoly and explain why it fits the characteristics of a monopoly.
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Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- The following table displays the average cost of producing a good at different levels of output in the long run. Output (units) Average Cost ($) 940 190 980 140 1,020 120 1,060 110 1,100 110 1,140 125 1,180 145 if all the firms in the market have the same LRAC curve, what is the minimum level of output needed for a low-cost firm to compete in the market? Write the exact answer. Do not round.arrow_forwardUse the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. PRICE (Dollars per pound) 100 90 80 70 80 50 40 30 20 10 0 0 125 250 375 500 825 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Demand Because you know that competitive firms earn Supply (10 firms) True Supply (15 firms) If there were 10 firms in this market, the short-run equilibrium price of rhodium would be $ would . Therefore, in the long run, firms would False Supply (20 firms) per pound. From the graph, you can see that this means there will be ? per pound. At that price,…arrow_forwardOn the following graph, use the orange points (square symbol) to plot points along the portion of the firm's short-run supply curve that corresponds to prices where there is positive output. (Note: For the graphing tool to grade correctly, you must plot the points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.) PRICE (Dollars per lamp) 100 8 8 70 50 30 20 10 0 PRICE (Dollars per lamp) 90 Suppose there are 5 firms in this industry, each of which has the cost curves previously shown. 100 Demand 80 10 70 20 30 50 60 70 QUANTITY (Thousands of lamps) On the following graph, use the orange points (square symbol) to plot points along the portion of the industry's short-run supply curve that corresponds to prices where there is positive output. (Note: For the graphing tool to grade correctly, you must plot these points in order from left to right, starting with the point closest to the origin. You are given more…arrow_forward
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- Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry? The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even. The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the…arrow_forwardConsider the perfectly competitive market for steel. Assume that, regardless of how many firms are in the industry, every firm in the industry is identical and faces the marginal cost (MCMC), average total cost (ATCATC), and average variable cost (AVCAVC) curves shown on the following graph. The following diagram shows the market demand for steel. Use the orange points (square symbol) to plot the short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. If there were 20 firms in this market, the short-run equilibrium price of steel would be per ton. At that price, firms in this…arrow_forwardIn competitive markets, there are many small firms with each firm unable to influence the market price. Suppose company ABX operates in the wheat market. The company produces and markets wheats at a Price = $20 per container. The firm’s total costs are given as: TC = 50 +2Q + 3Q2 What is the firm’s demand curve? Show it on a graph and label the axes showing P and Qarrow_forward
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