### Explanation of Industrial Clusters: In our recent class, we discussed the concept of clothing makers concentrating (clustering) around a button maker. Below is a graph (Figure 1) that helps illustrate this concept. #### Figure 1: Graph Details- **Axes**: The graph uses two axes. The vertical axis is labeled **S**, and the horizontal axis is labeled **N**.- **Curves**: The graph contains two curves: - **Curve 1**: This curve has a positive slope, meaning it rises from left to right. - **Curve 2**: This curve has a negative slope, meaning it falls from left to right.The intersection of Curve 1 and Curve 2 represents an equilibrium point in the context of our discussion on industrial clusters, where "N" signifies the number of firms in the cluster. #### Important ConsiderationsUnderstanding the dynamics of these curves can help explain how clusters of clothing makers develop around a central button maker, influenced by factors such as resource availability, labor supply, and economic incentives.**Use this information to answer the questions that follow below:**- How might the concentration of firms (N) affect the supply (S) in the cluster?- What factors could lead to a rightward or leftward shift in these curves? These questions are designed to deepen your understanding of industrial clustering and the economic principles that underpin such phenomena. ---### Question 3**Refer to Figure 1 above.**In class, we assumed that firm revenue was constant over N and solved for the profit-maximizing number of firms. I suggest you draw the graph we drew in class before you answer this question.Assuming nothing else is changing, how would the profit-maximizing number of firms change if firm revenue was decreasing in N?- It would stay the same- It would decrease- It would increase---### Question 4**Refer to Figure 1 above.**Now consider a different change in the profit-maximization problem you just did in the previous question. You can assume that revenue is constant or decreasing in N to answer the question, as long as you hold that assumption constant as you evaluate this new change.Assuming nothing else is changing, how would the profit-maximizing number of firms change if Curve 1 in Figure 1 shifted down (i.e. to the right), but the slope stayed the same?- It would stay the same- It would increase- It would decrease---Note: The reference to Figure 1 indicates there is a graph that illustrates the relationship between firm revenue and the number of firms (N). However, Figure 1 is not included in the provided text. The graph likely shows revenue on the vertical axis and the number of firms (N) on the horizontal axis.

Demand and supply are fundamental concepts in economics that describe the interaction between buyers…

D Refer to Figure 1 above. In class, we assumed that firm revenue was constant over N and solved for the profit-maximizing number of firms. I suggest you draw the graph we drew in class before you answer this question. Assuming nothing else is changing, how would the profit-maximizing number of firms change if firm revenue was decreasing in N? It would stay the same O it would decrease it would increase Question 4 Refer to Figure 1 above. Now consider a different change in the profit-maximization problem you just did in the previous question. You can assume that revenue is constant or decreasing in N to answer the question, as long as you hold that assumption constant as you evaluate this new change. Assuming nothing else is changing, how would the profit-maximizing number of firms change if Curve 1 in 1 Figure 1 shifted down (.e. to the right), but the slope stayed the same. It would stay the same It would increase It would decrease

D Refer to Figure 1 above. In class, we assumed that firm revenue was constant over N and solved for the profit-maximizing number of firms. I suggest you draw the graph we drew in class before you answer this question. Assuming nothing else is changing, how would the profit-maximizing number of firms change if firm revenue was decreasing in N? It would stay the same O it would decrease it would increase Question 4 Refer to Figure 1 above. Now consider a different change in the profit-maximization problem you just did in the previous question. You can assume that revenue is constant or decreasing in N to answer the question, as long as you hold that assumption constant as you evaluate this new change. Assuming nothing else is changing, how would the profit-maximizing number of firms change if Curve 1 in 1 Figure 1 shifted down (.e. to the right), but the slope stayed the same. It would stay the same It would increase It would decrease

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Profit is the incentive that drives our market economy. Firms make production, pricing, andhiring decisions based on their quest for profit. But what happens when a firm discoversthat it can make dramatically higher profits by stopping production altogether? In December2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such adecision.Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs andfound itself in the unique position of being an electricity consumer and, potentially, anelectricity reseller. By December 2000, Kaiser faced a difficult decision of continuing itscurrent aluminium production and profit levels, or closing the plant to dramatically increaseits profit by simply reselling its electricity.When making production decisions, firms must consider both their costs and revenues. Oneimportant concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation inSpokane, Washington, entered into a…
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