Agglomeration Economies and Auto Row Chapter 1 uses Auto Row as an example of self-reinforcing changes that lead to extreme outcomes. Consider a city with three isolated automobile dealers, each of which has three buyers per day. The profit per car sold is $1,000. A two-dealer cluster would get six times as many buyers (18), and a three-dealer cluster would get 12 times as many buyers (36). a. Use a graph like Figure 3–2 to show the profit gap (the profit for a firm in a cluster minus the profit for an isolated firm) for one, two, and three dealers. b. If initially all dealers are isolated and then one joins another to form a twodealer cluster, other firms [will, won’t] have an incentive to join the cluster because. . . .
. Agglomeration Economies and Auto Row Chapter 1 uses Auto Row as an example of self-reinforcing changes that lead to extreme outcomes. Consider a city with three isolated automobile dealers, each of which has three buyers per day. The profit per car sold is $1,000. A two-dealer cluster would get six times as many buyers (18), and a three-dealer cluster would get 12 times as many buyers (36).
a. Use a graph like Figure 3–2 to show the profit gap (the profit for a firm in a cluster minus the profit for an isolated firm) for one, two, and three dealers.
b. If initially all dealers are isolated and then one joins another to form a twodealer cluster, other firms [will, won’t] have an incentive to join the cluster because. . . .
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