31. Return to Figure 9.2. Suppose Po is $10and P₁ is $11. Suppose a new firm with thesame LRAC curve as the incumbent tries tobreak into the market by selling 4,000 units ofoutput. Estimate from the graph what thenew firm's average cost of producing outputwould be. If the incumbent continues toproduce 6,000 units, how much output wouldthe two firms supply to the market? Estimatewhat would happen to the market price as aresult of the supply of both the incumbentfirm and the new entrant. Approximately howmuch profit would each firm earn? Cost or Price ($)a aPo4,000 6,000 8,000Demand12,000 16,000 20,000OutputLRACFigure 9.2 Economies of Scale and Natural Monopoly In thismarket, the demand curve intersects the long-run average cost(LRAC) curve at its downward-sloping part. A natural monopolyoccurs when the quantity demanded is less than the minimumquantity it takes to be at the bottom of the long-run average costcurve.

Profit is the gap between the income and the expense of a firm. The LRAC curve is the route a firm…

31. Return to Figure 9.2. Suppose Po is $10 and P₁ is $11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000 units of output. Estimate from the graph what the new firm's average cost of producing output

31. Return to Figure 9.2. Suppose Po is $10 and P₁ is $11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000 units of output. Estimate from the graph what the new firm's average cost of producing output

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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