Panel 1. Individual firm 15 14 Price of widgets, S per widget 13 12 15. Consider a perfectly competitive industry with 1000 identical firms that produce widgets. The graphs below are for an individual firm in this industry and the market (the whole industry). (a) (2 points) On the graph for the market, draw the short-run market supply curve. Label it SSR. 10 AVC PEARSRSRSREBARBER Quantity of widgets Panel 2. Market for widgets 15 14 how how Transcribed Text Price of widgets, 5 per widget A32129k (b) (4 points) Now assume that a better substitute product comes on the market and a lot of consumers switch from widgets to this new product. Assume that the market for widgets is characterized by external diseconomies of scale. By completing the following story, describe in words [increase/decrease/exit/enter/entry/shifts up/shifts down] how the market responds to the above in the long-run (assume that before the change in demand, the market was in the long run equilibrium]: S 2RRASRARBERARBERER Quantity of widgets, thousand units Initially, in the long run equilibrium, the market price is As consumers switch to the substitute product, the demand for widgets the short run, the equilibrium price making As In the long-run, firms will of firms takes place, the supply curve C [number from the graph). In As a result, profits each firm is the industry Because the (b) (4 points) Now assume that a better substitute product comes on the market and a lot of consumers switch from widgets to this new product. Assume that the market for widgets is characterized by external diseconomies of scale. By completing the following story, describe in words [increase/decrease/exit/enter/entry/shifts up/shifts down] how the market responds to the above in the long-run [assume that before the change in demand, the market was in the long run equilibrium]: To get credit, ALL answers (words) in the above must be correct. Initially, in the long run equilibrium, the market price is As consumers switch to the substitute product, the demand for widgets the short-run, the equilibrium price making In the long run. firms will As of firms takes place, the supply curve industry is characterized by diseconomies of scale, due to (mumber from the graph). In As a result, profits each firm is the industry. Because the of firms, ATC of firms will continue until profits return to [number], meaning that in the long run the new equilibrium price will be Page 18 (c) (1 point) On the market graph and your story above, draw the long-run supply curve (SR)-make sure it is clearly labeled and is clearly visible.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Panel 1. Individual firm
15
14
Price of widgets, S per widget
13
12
15. Consider a perfectly competitive industry with 1000 identical firms that produce widgets. The graphs
below are for an individual firm in this industry and the market (the whole industry).
(a) (2 points) On the graph for the market, draw the short-run market supply curve. Label it SSR.
10
AVC
PEARSRSRSREBARBER
Quantity of widgets
Panel 2. Market for widgets
15
14
how
how Transcribed Text
Price of widgets, 5 per widget
A32129k
(b) (4 points) Now assume that a better substitute product comes on the market and a lot of
consumers switch from widgets to this new product. Assume that the market for widgets is
characterized by external diseconomies of scale.
By completing the following story, describe in words [increase/decrease/exit/enter/entry/shifts
up/shifts down] how the market responds to the above in the long-run (assume that before the
change in demand, the market was in the long run equilibrium]:
S
2RRASRARBERARBERER
Quantity of widgets, thousand units
Initially, in the long run equilibrium, the market price is
As consumers switch to the substitute product, the demand for widgets
the short run, the equilibrium price
making
As
In the long-run, firms will
of firms takes place, the supply curve
C
[number from the graph).
In
As a result, profits each firm is
the industry
Because the
(b) (4 points) Now assume that a better substitute product comes on the market and a lot of
consumers switch from widgets to this new product. Assume that the market for widgets is
characterized by external diseconomies of scale.
By completing the following story, describe in words [increase/decrease/exit/enter/entry/shifts
up/shifts down] how the market responds to the above in the long-run [assume that before the
change in demand, the market was in the long run equilibrium]:
To get credit, ALL answers (words) in the above must be correct.
Initially, in the long run equilibrium, the market price is
As consumers switch to the substitute product, the demand for widgets
the short-run, the equilibrium price
making
In the long run. firms will
As
of firms takes place, the supply curve
industry is characterized by diseconomies of scale, due to
(mumber from the graph).
In
As a result, profits each firm is
the industry.
Because the
of firms, ATC
of firms will continue until profits return to
[number], meaning that in the long run the new equilibrium price will be
Page 18
(c) (1 point) On the market graph and your story above, draw the long-run supply curve (SR)-make
sure it is clearly labeled and is clearly visible.
Transcribed Image Text:Panel 1. Individual firm 15 14 Price of widgets, S per widget 13 12 15. Consider a perfectly competitive industry with 1000 identical firms that produce widgets. The graphs below are for an individual firm in this industry and the market (the whole industry). (a) (2 points) On the graph for the market, draw the short-run market supply curve. Label it SSR. 10 AVC PEARSRSRSREBARBER Quantity of widgets Panel 2. Market for widgets 15 14 how how Transcribed Text Price of widgets, 5 per widget A32129k (b) (4 points) Now assume that a better substitute product comes on the market and a lot of consumers switch from widgets to this new product. Assume that the market for widgets is characterized by external diseconomies of scale. By completing the following story, describe in words [increase/decrease/exit/enter/entry/shifts up/shifts down] how the market responds to the above in the long-run (assume that before the change in demand, the market was in the long run equilibrium]: S 2RRASRARBERARBERER Quantity of widgets, thousand units Initially, in the long run equilibrium, the market price is As consumers switch to the substitute product, the demand for widgets the short run, the equilibrium price making As In the long-run, firms will of firms takes place, the supply curve C [number from the graph). In As a result, profits each firm is the industry Because the (b) (4 points) Now assume that a better substitute product comes on the market and a lot of consumers switch from widgets to this new product. Assume that the market for widgets is characterized by external diseconomies of scale. By completing the following story, describe in words [increase/decrease/exit/enter/entry/shifts up/shifts down] how the market responds to the above in the long-run [assume that before the change in demand, the market was in the long run equilibrium]: To get credit, ALL answers (words) in the above must be correct. Initially, in the long run equilibrium, the market price is As consumers switch to the substitute product, the demand for widgets the short-run, the equilibrium price making In the long run. firms will As of firms takes place, the supply curve industry is characterized by diseconomies of scale, due to (mumber from the graph). In As a result, profits each firm is the industry. Because the of firms, ATC of firms will continue until profits return to [number], meaning that in the long run the new equilibrium price will be Page 18 (c) (1 point) On the market graph and your story above, draw the long-run supply curve (SR)-make sure it is clearly labeled and is clearly visible.
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