Economies of scale as a barrier to entry. Concept Introduction: Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

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Answer 1

Question

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.

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a) Assume there are two firms, 1 and 2, competing as Cournot duopolists in a market, selling a homogeneous product. Demand is given by p = 36 – (q1 + q2), where p is price and q1 and q2 are the outputs of firms 1 and 2 respectively. Each firm faces a marginal cost of 6 per unit of output and no fixed cost. Find each firm’s optimal output, the price at which they sell, each firm’s profit , and consumer surplus. b) Now assume that the firms face the same costs, but horizontally differentiate their product, so that firm 1 faces demand p1 = 36 – (q1 + q2/2) and firm 2 faces demand p2 = 36 – (q1/2 + q2). Assume Cournot competition. Calculate the new equilibrium prices and outputs for each firm, consumer surplus and profits. c) Now assume that rather than facing a given degree of product differentiation, the firms can choosehowdifferentiatedtheirproductsare.Thisisequivalenttoinversedemandequationsp1 =36 –(q1 +θq2)andp2 =36–(θq1 +q2),0≤θ≤1,withθdeterminedbythefirms’choicesofproduct…

Assume there are two firms, 1 and 2, competing as Cournot duopolists in a market, selling a homogeneous product. Demand is given by p = 36 – (q1 + q2), where p is price and q1 and q2 are the outputs of firms 1 and 2 respectively. Each firm faces a marginal cost of 6 per unit of output and no fixed cost. Find each firm’s optimal output, the price at which they sell, each firm’s profit , and consumer surplus.

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Answer 2

Question

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.

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Answer 3

Question

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.

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Answer 4

Question

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.

Answer 6

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.

Answer 7

Chapter 9, Problem 1P

To determine

Economies of scale as a barrier to entry.

Concept Introduction:

Economies of scale refer to the benefit achieved by the big entity over the small entity, because of producing in much effective and cost saving way.Larger the entity, lower is the cost.

Answer 8

Expert Solution & Answer

Explanation of Solution

If the increase in production results in a decrease in average total cost, then in such a case, there will be a downward sloping curve of average total cost. Therefore, it is more profitable for a producer to produce more if the average total cost is decreasing with the increase in production.

The economies of scale are mostly enjoyed by the already existing firm, who have decreased its cost of production by using its resources in a most efficient way and by reducing its average total cost. The new firm cannot use its resources with that much efficiency and it cannot even reduce its cost of production, as much already existing firm can. Thus, a new firm cannot compete with the already existing firm and cannot gain economies of scale. Therefore, entry of new firm is restricted because of economies of scale.