*3.5 Assume that you are employed as an analyst at an interna-tional consulting firm. Your latest assignment is to do anindustry analysis of the fast-growing "telemonica" industry.After extensive research on this combination cell phone andharmonica, you have obtained the following information:Long-run costs:Capital costs: $40 per unit of outputLabor costs: $25 per unit of outputNo economies or diseconomies of scaleinIndustry currently earning a normal return to capital(profit of zero)I Industry perfectly competitive, with each of 100 firmsproducing the same amount of outputTotal industry output: 800,000 telemonicas. Demand fortelemonicas is expected to grow rapidly over the nextfew years, especially in foreign markets, to a level fourtimes as high as it is now, but (due to short-run diminish-ing returns) each of the 100 existing firms is likely to beproducing only 100 percent more.a. Sketch the long-run cost curve of a representative firm.b. Show the current conditions by drawing two diagrams, oneshowing the industry and one showing a representativefirm.ti-utc. Sketch the increase in demand and show how the indus-try is likely to respond in the short run and in the longrun.

(a) In the question, the LR costs of the representative firm is given - Capital costs = $ 40 per…

a. Sketch the long-run cost curve of a representative firm. b. Show the current conditions by drawing two diagrams, one showing the industry and one showing a representative firm. c. Sketch the increase in demand and show how the indus- try is likely to respond in the short run and in the long run.

a. Sketch the long-run cost curve of a representative firm. b. Show the current conditions by drawing two diagrams, one showing the industry and one showing a representative firm. c. Sketch the increase in demand and show how the indus- try is likely to respond in the short run and in the long run.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

*3.5 Assume that you are employed as an analyst at an interna-
tional consulting firm. Your latest assignment is to do an
industry analysis of the fast-growing "telemonica" industry.
After extensive research on this combination cell phone and
harmonica, you have obtained the following information:
Long-run costs:
Capital costs: $40 per unit of output
Labor costs: $25 per unit of output
No economies or diseconomies of scale
in
Industry currently earning a normal return to capital
(profit of zero)
I Industry perfectly competitive, with each of 100 firms
producing the same amount of output
Total industry output: 800,000 telemonicas. Demand for
telemonicas is expected to grow rapidly over the next
few years, especially in foreign markets, to a level four
times as high as it is now, but (due to short-run diminish-
ing returns) each of the 100 existing firms is likely to be
producing only 100 percent more.
a. Sketch the long-run cost curve of a representative firm.
b. Show the current conditions by drawing two diagrams, one
showing the industry and one showing a representative
firm.
ti-
ut
c. Sketch the increase in demand and show how the indus-
try is likely to respond in the short run and in the long
run.

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