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Chapter 23: Q. 12 (page 533)

In several perfectly competitive markets for minerals used as inputs in digital devices, persistent increases in demand eventually have generated long-run increases in the market prices of these devices. Describe in words the types of adjustments that must have occurred in these markets to have brought about this outcome, and evaluate whether such digital-device industries are increasing-, constant-, or decreasing-cost industries.

Short Answer

Expert verified

It's within the long term, the variable costs have dipped with consistent or dipped costs,leading to economic profits

Step by step solution

01

Introduction

A competitive market is one where there are numerous producers that compete witheach other in hopesto supply goods and services we, as consumers, wantand want. In other words, not one single producer can dictate the market. One producer and one consumer can't decidethe worth of products or decidethe number that may be produced.

02

Given Information

Minerals used as inputs in digital devices, persistent increases in demand eventually have generated long-run increases within the market prices of those devices.

03

Explanation

The industry has seen as an constant cost industry.
In this, the long term inputs have dipped in prices nor stayed constant. Since, it's within the long term, the variable costs have dipped with consistent or dipped costs, leading to economic profits.

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Most popular questions from this chapter

Discuss how a perfectly competitive firm decides how much output to produce

The table nearby represents the hourly output and cost structure for a local pizza shop. The market is perfectly competitive, and the market price of a pizza in the area is $10. Total costs include all opportunity costs. Fixed costs equal zero.

a. Calculate the total revenue and total economic profit for this pizza shop at each rate of output.

b. Assuming that the pizza shop always produces and sells at least one pizza per hour, does this appear to be a situation of short-run or long-run equilibrium?

c. Calculate the pizza shop's marginal cost and marginal revenue at each rate of output. Based on marginal analysis, what is the profit maximizing rate of output for the pizza shop?

d. Draw a diagram depicting the short-run marginal revenue and marginal cost curves for this pizza shop, and illustrate the determination of its profit-maximizing output rate.

Explain why each of the following examples is not a perfectly competitive industry.

a. One firm produces a large portion of the industry's total output, but there are many firms in the industry, and their products are indistinguishable. Firms can easily exit and enter the industry.

b. There are many buyers and sellers in the industry. Consumers have equal information about the prices of firms' products, which differ moderately in quality from firm to firm.

c. Many taxicabs compete in a city. The city's government requires all taxicabs to provide identical services. Taxicabs are nearly identical, and all drivers must wear a designated uniform. The government also enforces a binding limit on the number of taxicab companies that can operate within the city's boundaries.

Consider the information provided in Problem 23-4. Suppose the market price drops to only $5 per pizza. In the short run, should this pizza shop continue to make pizzas, or will it maximize its economic profits (that is, minimize its economic loss) by shutting down?

Why are we unable to conclude that large numbers of entries into and exits from all U.S. industries imply that all the industries are perfectly competitive? (Hint: What are the other characteristics of perfect competition?)
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