Chapter 60, Problem 1CYU

a)

To determine

A technological advancement impact on entry of a firm.

Answer to Problem 1CYU

A technological advancement that lowers the firm’s fixed cost of production will induce the entry of firms.

Explanation of Solution

A technological advancement that lowers the firm’s fixed cost of production will induce the entry of firms because lowering fixed cost would reduce the price of a good in the market which increases the demand for goods. As a result, firms get a positive economic profit which attracts new firm to enter.

Economics Concept Introduction

Introduction:

A firm’s entry into the market depends on the industry’s condition such as a constant cost industry, increasing cost industry, decreasing cost industry, normal profit, positive economic profit, and economic loss. Technological advancement will reduce the cost of production.

b)

To determine

Rise in the wage of workers’ impact on entry of firm.

Answer to Problem 1CYU

An increase in the wage of workers for an extended period of time will force them to exit the market because it increases the cost of production which resulted in an increase in price and a fall in demand. As a result, firms exit the market due to high costs and low demand.

Explanation of Solution

An increase in the wage of workers for an extended period of time will force them to exit the market because it increases the cost of production which resulted in an increase in price and a fall in demand. As a result, firms exit the market due to high costs and low demand.

Economics Concept Introduction

Introduction:

A firm’s entry into the market depends on the industry’s condition such as a constant cost industry, increasing cost industry, decreasing cost industry, normal profit, positive economic profit, and economic loss. An increase in the wage of a worker would increase the variable cost and total cost of production.

c)

To determine

An increase in demand due to a permanent change in consumer tastes impacts on entry of a firm.

Answer to Problem 1CYU

An increase in demand due to positive changes in tastes will induce the entry of firms.

Explanation of Solution

An increase in demand due to a positive change in tastes would shift the demand curve upward which increases the price in the market. As a result, the firm earns positive profit which attracts new firms to enter the market.

Economics Concept Introduction

Introduction:

A firm’s entry into the market depends on the industry’s condition such as a constant cost industry, increasing cost industry, decreasing cost industry, normal profit, positive economic profit, and economic loss. An increase in demand due to a change in tastes would increase the price of that good which increases the industry’s output.

d)

To determine

Rise in key input cost impact on entry of firm.

Answer to Problem 1CYU

The rise in the price of key input will result in the exit of firms.

Explanation of Solution

An increase in the price of key input would increase the cost of production which increased in price and therefore fall in demand. As a result, the profit of the firm falls which discourage new entry and existing firm leave the market.

Economics Concept Introduction

Introduction:

The rise in the price of key input would increase the cost of production. A firm’s entry into the market depends on the industry’s condition such as a constant cost industry, increasing cost industry, decreasing cost industry, normal profit, positive economic profit, and economic loss.