Bundle: ECON MICRO, 5th + Aplia, 1 term Printed Access Card
Bundle: ECON MICRO, 5th + Aplia, 1 term Printed Access Card
5th Edition
ISBN: 9781337192712
Author: William A. McEachern
Publisher: Cengage Learning
Question
Book Icon
Chapter 8, Problem 6.11P

A

To determine

Short run adjustments for markets and the firm to a decrease in consumer incomes are to be illustrated graphically.

Concept Introduction : Perfectly competitive firms are the ones with many firms producing same product in the market at a homogenous prices. The entry and exit in competitive market is free , the firms always face competition due to high substitutability of the products. Under perfect competition , long run equilibrium is when all factors of production are variable , new firms entering the market supply of firm’s increases reducing price per product. They need to ensure p> AVC to stay in the market so the loss making firm exit. Thus, firms enjoy market efficiency P=MR.

B

To determine

Long run adjustments to the drop in income are to be shown graphically.

Concept Introduction : Perfectly competitive firms are the ones with many firms producing same product in the market at a homogenous prices. The entry and exit in competitive market is free , the firms always face competition due to high substitutability of the products. Under perfect competition , long run equilibrium is when all factors of production are variable , new firms entering the market supply of firm’s increases reducing price per product. They need to ensure p> AVC to stay in the market so the loss making firm exit. Thus, firms enjoy market efficiency P=MR.

Blurred answer
Students have asked these similar questions
Given the following petroleum tax details, calculate the marginal tax rate and explain its significance: Total Revenue: $500 million Cost of Operations: $200 million Tax Rate: 40% Additional Royalty: 5% Profit-Based Tax: 10%
Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.   ​(Hint​: Show that learning by doing lowers its cost in the second​ period.) Part 2 Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash​ equilibrium?
Answer
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ECON MICRO
Economics
ISBN:9781337000536
Author:William A. McEachern
Publisher:Cengage Learning
Text book image
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Microeconomic Theory
Economics
ISBN:9781337517942
Author:NICHOLSON
Publisher:Cengage
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning