2. Why is the retail market for PCs more competitive than a monopoly? In the art

Question

2. Why is the retail market for PCs more competitive than a monopoly? In the article, several people in this industry complain about thinner profit margins. Can the retail market survive with the current level of profits? Do you expect there will be entry of more firms into the retail market? (Circuit City no longer exists, but Best Buy rebounded and is continues to be a successful retailer.)

Explanation / Answer

This is simply becuase the supply of PCs is much greater than the market of a monopoly say electic companies. The retail could survive in this market, as long as thier marginal cost is equal to their marginal revenue in the long run. In the short run, their marginal revenue just cannot fall below average total cost of they will be forced to shut down. There will be entry of more firms into the market as long as MR>MC. This sends a signal that there is economic profits to be made therefore, causing suppliers to enter the market. In the long run, they drop out until equilibrium when MC=MR is met. Hope this helps

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