What are the determinants of elasticity of supply?
The following factors determine the price elasticity of supply for a good:
a . Availability of close substitutes: The more substitutes that exist in a production process, the easier it will be for sellers to switch between products given changes in prices. As more close substitutes become available, the supply becomes more elastic. If fewer close substitutes exist, the supply is less elastic.
b. The time period of analysis: The longer the time frame of analysis, the easier it is to make adjustments in production by switching production methods and/or building or closing down production facilities. Shorter time frames generally result in less elastic supply. Longer time frames generally result in more elastic supply.
c. Competition in the market: The fewer firms that exist in a market, the less responsive firms are to price changes.
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A unit of output whose production and sale adds less to cost than it generates in additional revenue is
A) a profitable unit to produce and sell if marginal cost declines with additional output. B) a profitable unit to produce and sell if total receipts exceed total costs. C) a profitable unit to produce and sell unless it must be sold at a price below average unit cost. D) a profitable unit to produce and sell.
In a Bertrand model, if one firm has a dominant strategy, its best-response function
A) does not exist. B) is identical to its rival. C) is a constant. D) is to respond to its rival's price increase with a price decrease.