When car makers began to cut the costs of producing cars by designing the chassi
ID: 1243919 • Letter: W
Question
When car makers began to cut the costs of producing cars by designing the chassis, engine, and transmissions so that different models could be produced on the same assembly line, production costs fell $240 per car. This idea best illustrates: economies of scale. diseconomies of scale. constant returns to scale. diminishing marginal product. eBay.com is a vast auction site that is similar to a competitive market in some ways but also differs from it in others. In what way does eBay differ from what economists define as a competitive market? Sellers in competitive markets are usually large firms, but on eBay there are a large number of sellers. Sellers in competitive markets want to make a profit, but sellers on eBay are small and hence are only selling for fun. It is easy to start selling on eBay, but to enter a competitive market one must be organized as a corporation. Sellers on eBay sometimes mislead customers, while in a competitive market deceit cannot take place.Explanation / Answer
1.) A.) It is economies of scale because it shows that if you increase the inputs a certain percentage (in this case designing more parts of the car), you increase the output by a greater percentage (shown by the price going down). In diseconomies of scale, the car would cost more, and in constant returns to scale, the car would cost the same. And diminishing marginal product is not relevant to the question.
2.) D.) In a competitive market, we can assume that every product is identical, which we cannot assume on eBay. A is wrong because in a perfectly competitive market, there is an infinite number of sellers, because no single seller can affect the price. In this way, eBay is like a competitive marketplace. B is wrong because those small sellers cannot affect the market. And C is wrong because entry into the market should be easy in a competitive market.
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