24. With the aid of relevant diagram(s), answer the following questions: (a) "Long run average cost curves are U-shaped for all firms in Industry Y. A typical firm's total costs include costs of transportation, labour and raw materials. When market demand grows over time, new firms will enter the market. Total production volume for the whole market will expand. With the growing importance of the clients from this industry, transportation companies design special ships to suit for the requirement for this industry such that firms can ship the same quantity of products at lower costs." Does the above situation indicate: (i) the presence of economies of scale? OR (ii) the phenomenon of decreasing-cost industry? OR (iii) neither (i) nor (ii)? Briefly explain. (b) "Consider all firms have fully exploited economies of scale in a perfectly competitive market. In this situation, a further increase in market demand can only lead to a higher product price (at least price cannot be lower)."
24. With the aid of relevant diagram(s), answer the following questions: (a) "Long run average cost curves are U-shaped for all firms in Industry Y. A typical firm's total costs include costs of transportation, labour and raw materials. When market demand grows over time, new firms will enter the market. Total production volume for the whole market will expand. With the growing importance of the clients from this industry, transportation companies design special ships to suit for the requirement for this industry such that firms can ship the same quantity of products at lower costs." Does the above situation indicate: (i) the presence of economies of scale? OR (ii) the phenomenon of decreasing-cost industry? OR (iii) neither (i) nor (ii)? Briefly explain. (b) "Consider all firms have fully exploited economies of scale in a perfectly competitive market. In this situation, a further increase in market demand can only lead to a higher product price (at least price cannot be lower)."
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer each sub-question, and make sure your answer is correct!
Transcribed Image Text:24. With the aid of relevant diagram(s), answer the following questions:
(a)
"Long run average cost curves are U-shaped for all firms in Industry Y. A
typical firm's total costs include costs of transportation, labour and raw
materials. When market demand grows over time, new firms will enter the
market. Total production volume for the whole market will expand. With the
growing importance of the clients from this industry, transportation
companies design special ships to suit for the requirement for this industry
such that firms can ship the same quantity of products at lower costs." Does
the above situation indicate: (i) the presence of economies of scale? OR (ii)
the phenomenon of decreasing-cost industry? OR (iii) neither (i) nor (ii)?
Briefly explain.
(b) "Consider all firms have fully exploited economies of scale in a perfectly
competitive market. In this situation, a further increase in market demand
can only lead to a higher product price (at least price cannot be lower)."
Evaluate the truthfulness of this claim.
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