Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 24, Problem 7CQ
To determine
High barriers to entry.
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QUESTION 2:
Consider a competitive market. There are X number of firms in this market. Every firm is facing the following set up:
a. How does the number of firms in the industry, affect each firm's demand curve? Why?
b. What will be the production in this market? What price will the companies charge? How much profit will firms make?
c. What is the minimum number of firms in the market so that everyone is making losses?
d. How many firms will exist in this market in the long-run?
Choose a product or service that you are familiar with (something you use or have used, something related to a job you or someone close to you has held, etc.). Are there a lot or few firms in the industry? Are the products similar or identical or without close substitutes? Are there barriers to entry and, if so, what are they?
Suppose that we have a perfectly competitive market with inverse market demand P = 1000-10Q and inverse market supply P =
250+5Q.
A. What is the equilibrium price and quantity in this market?
B. Suppose the market is populated by identical firms whose total costs are TC = 100+4000 + 250² and whose marginal
costs are MC = 400 + 50Q. How much output should each firm produce in the short run?
C. What are each firm's profits?
D. How many firms are there currently in the market? What do you think will happen to the number of firms in the long run?
Chapter 24 Solutions
Economics: Private and Public Choice
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