Econ ch 14

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Alfred​ Chandler, a professor at the Harvard Business​ School, has​ observed, ​"Imagine the diseconomies of scale—the great increase in unit costs—that would result from placing close to​ one-fourth of the​ world's production of​ shoes, or​ textiles, or lumber into three factories or​ mills!" The​ shoe, textiles, and lumber industries are very competitive with many firms producing each of these products. ​Source: Alfred D.​ Chandler, Jr.,​ "The Emergence of Managerial​ Capitalism," in Alfred D.​ Chandler, Jr. and Richard S.​ Tedlow, The Coming of Managerial Capitalism​, New​ York: Irwin,​ 1985, p. 406. What does​ Chandler's observation​ suggest?

Smaller firms can produce at a lower​ long-run average cost than larger firms.

If an entrepreneur is planning on producing 6,000 units, should he choose the smaller or larger​ operation?

The larger operation

Predict the effect on the price and quantity of nutritional advice offered in Florida if the Florida legislature repeals the requirement that only licensed dietitians provide such advice. The supply of services provided by dietitians will---- shifting the supply curve to the---- This will ----the equilibrium price and-----the equilibrium quantity of nutritional services.

-increase -right -decrease -increase

What benefits might a firm receive from attaining economies of scale before competing firms in the industry​ do? If a firm attains economies of​ scale, its average cost will be---- its competitors. This means the firm can sell its product at a----price than its competitors.

-lower than -lower

An article in the Wall Street Journal quoted a business consultant as saying​ that, "Today, companies are trying to get bigger to get economies of​ scale." ​Source: Sharon​ Terlep, "Big Companies Face Period of Rising Growth and​ Turmoil," Wall Street Journal​, January​ 22, 2018. a. What are economies of​ scale?

A situation in which a​ firm's long-run average costs fall as the firm increases output.

Which of the following terms is a barrier to​ entry?

All of the above

Name one barrier to entry a new firm would face in competing​ with: i. Google in online advertising ii. Apple in smartphones iii. Facebook in social media apps iv. Amazon in online retailing

All of the above.

A column on bloomberg.com discusses whether tech firms like​ Google, Apple,​ Facebook, and Amazon will be able to maintain their high market shares indefinitely. The column notes that the firms​ "argue that their dominance is hardly durable because barriers to entry are low for new competitors. As Google is fond of​ saying, competition is just​ 'one click​ away.'" ​Source: David​ McLaughlin, "Did Big Tech Get Too​ Big? More of the World​ Is," bloomberg.com, March​ 22, 2019. What does the columnist mean by​ "barriers to​ entry"?

Anything that keeps new firms from entering an industry in which firms are earning economic profits.

When the market demand curve intersects the quantity axis at more than​ 1,000 units but less than​ 10,000 units.

Firms like BigAuto

When the market demand curve intersects the quantity axis at more than​ 10,000 units.

Firms like BigAuto

When the market demand curve intersects the quantity axis at less than​ 1,000 units.

Firms like LittleAuto

Can we be sure that the result of the decision will be to increase the​ well-being of consumers of nutritional advice in​ Florida? Briefly explain.

If the people who provide nutritional advice after a repeal of the licensing requirement are at least as good as the dietitians who are currently​ licensed, then consumer surplus in Florida will increase due to a lower equilibrium price and a higher equilibrium quantity.

How might technological changes reduce the importance of the barriers to entry you identified​ above?

It may create opportunities for new firms to offer goods and services that better serve their​ customers' wants.

Suppose you open a new restaurant in Los Angeles. Can you use economies of scale as a barrier to entry so that your restaurant will be profitable in the long​ run? Briefly explain.

No, because there are no significant economies of scale in the restaurant​ industry, except possibly at very low levels of output.​ Consequently, making your restaurant larger will not be effective in preventing other restaurants from entering the market and competing against you at about the same average cost.

Michael Porter has​ argued, ​"The intensity of competition in an industry is neither a matter of coincidence nor bad luck.​ Rather, competition in an industry is rooted in its underlying economic​ structure." ​Source: Michael​ Porter, Competitive​ Strategy: Techniques for Analyzing Industries and Competitors​, New​ York: The Free​ Press, 1980, p. 3. Which of the following factors would not be included in​ Porter's concept of​ "economic structure"?

Whether the market is monopolistic or competitive.

Give an example of a​ government-imposed barrier to entry. An example of a​ government-imposed barrier to entry is

a and b

Why would the government be willing to erect barriers to entering an​ industry? The government would be willing to impose barriers to

all of the above

Which of the terms below is defined as​ "anything that keeps new firms from entering an industry in which firms are earning economic​ profits"?

barriers to entry

Three examples of oligopolies in the United States are industries that produce or sell

computers​, athletic​ footware, and cigarettes.

What are the most important barriers to​ entry? The most important barriers to entry are

economies of​ scale, ownership of a key​ input, and government imposed barriers.

How do barriers to entry affect the extent of​ competition, or lack​ thereof, in an​ industry? Without barriers to​ entry,

new firms will enter industries where firms are earning economic profits.

What is an​ oligopoly? An oligopoly is a market structure

where a small number of interdependent firms compete.

Economies of scale exist when a​ firm's ___________ average costs fall as it​ __________ output.

​long-run; increases


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