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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F036827b5-d7f2-4185-b035-6657a245627d%2Fe4e0a854-ca6b-4249-bdd7-e1d2474e44e7%2F87tih7f_processed.jpeg&w=3840&q=75)
Transcribed Image Text:*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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