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?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

PLEASE ANSWER QUESTION 6

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.)
Transcribed Image Text: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.)
Expert Solution
steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Inflation and Unemployment
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education