Use the terms listed below to answer the questions. You will not use all of thes
ID: 1224503 • Letter: U
Question
Use the terms listed below to answer the questions. You will not use all of these terms. For each item, type the letter of the market structure which is described in the statement. The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product. The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers. Local cable television service, where a licensed supplier competes with firms offering satellite service. The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm. In 1985, the Coca-Cola Company was faced with soaring prices for sugar cane. A 1-cent increase in the price of sugar cane raised its total cost by $20 million. Rather than raise the price, the company looked for a cheaper input and replaced cane sugar with com sugar. Because corn was more plentiful in the United States, it was cheaper to produce. Is sugar a fixed or variable input? Sugar is a input. For the following questions fill-in the blank with either yes or no. Did the switch in the input lower: Total Cost? Variable Cost? Fixed Cost? Average Total Cost? Average Fixed Cost? Average Variable Cost? Under the following market structures where would price be in relation to average total cost (ATC) in the long run? Fill-in the blank with either P = ATC minimum, P = ATC above minimum, or P>ATC. Perfect Competition. Monopoly. Oligopoly. Monopolistic Competition .Explanation / Answer
1.a. Option F is correct (perfect competition).
Perfect competition is the only market that is characterised by homogeneous products with large number of firms.
b. Option B is correct.
Large number of buyers and sellers selling differentiated products is the feature of monopolistic market.
c. Option A is correct.
Oligopoly is charaterised by few sellers in the market selling either differentiated or homogeneous goods.
d. Option D is correct.
Oligopoly is few firms in the market. Particularly, this case its a duopoly.
2.a. Variable input.
This is because, the cost would vary with the level of output needs to be produced.
b. Yes.
Total cost = fixed cost + variable cost. Decrease in variable cost would imply lower total cost.
c. Yes.
Sugar is a variable cost only.
d. No.
Fixed cost is that cost which needs to be incurred even if there is no production, it does not vary with the level of output.
e. Yes.
ATC = TC/output.
A change in TC would bring in a change in ATC.
f. No.
AFC = fixed cost/output.
as the FC is unchanged, so is AFC.
g. Yes.
AVC = VC/output
A change in VC would bring in a change in AVC.
3.a. P = ATC minimum.
Perfect competition there is no economic prodit in the long run. Price is determined by equating price with MC.
b. P > ATC
Because of monopoly power to charge a price above its marginal cost.
c. P > ATC
Normally, the firms in oligopoly collude and behave like a monopolist, so charge a higher price.
d. P = ATC above minimum.
This is so because in monopolistic competition, firms have excess capacity.
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