Assume that in the market for widgets, demand is highly elastic compared to supply. If input costs for producing widgets drop, what happens to equilibrium price and quantity? Explain.
Ans) If input costs for producing widgets drop, the cost of production decreases so supply increases and shifts to the right. The equilibrium price decreases and equilibrium quantity increases.
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If an industry currently dominated by three large producers whose revenues represent 30%, 30%, and 30% of the market's total revenues, with the remaining two firms each representing 5%, then one of the large firms merged with one of the small ones, what would be the new four firm concentration ratio and the new Herfindahl-Hirschman Index for this industry?
a. 100%; 3,050 b. 100%; 2,750 c. 95%; 3,050 d. 95% 2,750
When firms are faced with making strategic choices in order to maximize profit, economists typically use ____ to model their behavior
a. monopoly theory b. game theory c. cartel theory d. the theory of perfect competition