EBK ECONOMICS
EBK ECONOMICS
13th Edition
ISBN: 8220106798607
Author: Arnold
Publisher: CENGAGE L
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Chapter 24, Problem 1QP
To determine

Determine the market structure that is common in all the four firms.

Expert Solution & Answer
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Explanation of Solution

The common criterion in all the four firms’ market structure based on the pricing decision is that all the firms produce the quantity of output where the marginal cost is equal to marginal revenue.

Economics Concept Introduction

Perfect competition: Perfect competition is a type of market structure, which is considered by a large number of sellers and buyers who exist in the market, no barriers to entry and exit, selling the homogenous commodity, and the firm is known as a price taker.

Monopoly: Monopoly is a type of market structure, which is considered by a single seller who exists in the market, high barriers to entry and exit, selling goods that have no close substitutes, and the firm is known as the price maker.

Monopolistic competition: Monopolistic competition is a type of market structure, which is considered by a large number of buyers and sellers who exist in the market, few barriers of entry and exit, differentiated products, and the firms have some control over the market price.

Oligopoly: Oligopoly is the type of market structure, which is considered by few sellers who exist in the market with a large market share, high barriers to entry, and selling differentiated products.

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Problem 3 You are given the following demand for European luxury automobiles: Q=1,000 P-0.5.2/1.6 where P-Price of European luxury cars PA = Price of American luxury cars P, Price of Japanese luxury cars I= Annual income of car buyers Assume that each of the coefficients is statistically significant (i.e., that they passed the t-test). On the basis of the information given, answer the following questions 1. Comment on the degree of substitutability between European and American luxury cars and between European and Japanese luxury cars. Explain some possible reasons for the results in the equation. 2. Comment on the coefficient for the income variable. Is this result what you would expect? Explain. 3. Comment on the coefficient of the European car price variable. Is that what you would expect? Explain.
Problem 2: A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product: Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc (5,234) (1.29) (175) (0.12) (0.17) (0.13) R²=0.68 SER 786 F=21.25 The variables and their assumed values are P = Price of basic model = 7,000 Q==Quantity A = Advertising expenditures (in thousands) = 52 P = Average price of a personal computer = 4,000 P. Average price of a minicomputer = 15,000 Pe Average price of a leading competitor's workstation = 8,000 1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm's marketing and pricing policies? 2. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to…
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