PLEASE ANSWER QUESTION 7 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.)

perfectly competitive market where firm sells identical products and firms are price taker.

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.)

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.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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