PLEASE ANSWER QUESTION 1 Section one-theoryA: Key concepts1. What is a Pareto improvement? Give a short example.2. What is a perfectly competitive market? (in terms of firm behaviour)B: Theory: Market powerTerminology: diminishing returns to scale (DRS), constant returns (CRS), increasing returns (IRS)3. A firm with positive fixed costs encounters CRS and then DRS as it expands production. Showthe firm's marginal costs, average variable costs, and average costs in a suitably labelledgraph. (careful...)4. We are in a perfectly competitive market, in which all firms are identical. Market demand isdownward sloping.a. Draw the market supply, demand, and equilibrium.b. At present, our firm is producing new widgets for £1.15 and the market price is £2. Isthe firm maximising profits? Is the firm in profit or loss?5. Our firm is now a monopolist facing the same downward-sloping demand curve. Whathappens to price and quantity produced? Explain.Section two-theory and policyC: Disruptive technologyEstate agents help sellers advertise their home for sale to potential buyers. At present, estate agentsoperate in a perfectly competitive market, at LR equilibrium.6. A large number of new estate agents (with the same technology as existing firms) enter themarket. What is the effect on output, price, and profits in the short-run? How about thelong-run?7. A well-known internet company (WKIC) quietly launches an internet service in which peoplecan find houses. The WKIC has considerably lower average costs than traditional estateagents. What is the effect on output, price, and profits in the short-run? How about thelong-run? (Assume that the offering of the WKIC can be duplicated.)

A Pareto improvement happens when, given an initial distribution of commodities for a group of…

Answered: 1. What is a Pareto improvement? Give a…

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1. What is a Pareto improvement? Give a short example.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Question

PLEASE ANSWER QUESTION 1

Section one-theory
A: Key concepts
1. What is a Pareto improvement? Give a short example.
2. What is a perfectly competitive market? (in terms of firm behaviour)
B: Theory: Market power
Terminology: diminishing returns to scale (DRS), constant returns (CRS), increasing returns (IRS)
3. A firm with positive fixed costs encounters CRS and then DRS as it expands production. Show
the firm's marginal costs, average variable costs, and average costs in a suitably labelled
graph. (careful...)
4. We are in a perfectly competitive market, in which all firms are identical. Market demand is
downward sloping.
a. Draw the market supply, demand, and equilibrium.
b. At present, our firm is producing new widgets for £1.15 and the market price is £2. Is
the firm maximising profits? Is the firm in profit or loss?
5. Our firm is now a monopolist facing the same downward-sloping demand curve. What
happens to price and quantity produced? Explain.
Section two-theory and policy
C: Disruptive technology
Estate agents help sellers advertise their home for sale to potential buyers. At present, estate agents
operate in a perfectly competitive market, at LR equilibrium.
6. A large number of new estate agents (with the same technology as existing firms) enter the
market. What is the effect on output, price, and profits in the short-run? How about the
long-run?
7. A well-known internet company (WKIC) quietly launches an internet service in which people
can find houses. The WKIC has considerably lower average costs than traditional estate
agents. What is the effect on output, price, and profits in the short-run? How about the
long-run? (Assume that the offering of the WKIC can be duplicated.)

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