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)."

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Imagine you are the mayor of a town and you are trying to decide if you should pay for a fireworks show. Your staff survey your 400 citizens who say that they each value a fireworks show at $10. The fireworks show only costs $3,000 so you put on the show but when you ask for donations to pay for the fireworks you only receive $25 total. What does this result show? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. You staff's survey must have overestimated the value of a fireworks show. b The fireworks cost must have been greater than their economic benefit. The firework show suffered from the Tragedy of the Commons problems d The town's citizens were free-riders.
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