BUS 640 Managerial Economics
Dr. David Brownfield
January 14, 2013
Chapter 11, Applied Problem, 8
a. This particular industry has a constantly increasing cost. There will be an increase in the demand for input factors for one key reason. Every day, new companies will be introduced into this market of remodeling, economic profits being the encouraging factor. Because of this, there will be a bid up on input prices for the companies in the industry of remodeling. “When a market is characterized by a large number of small producers, the demand curve facing the manager of each individual firm is horizontal at the price determined by the intersection of the market demand and supply curves” (Thomas and Maurice, 2011). Inputs, then, will become more costly for an industry which is, once again, constantly increasing-cost. If the remodeling industry were what you would consider a constant-cost industry, there would be no bid up on input prices. Due to this, the costs of production will concurrently increase.
b. At the end of the day, the determining factor in prices is marginal costs. When variable costs and inputs rise, thus will the prices. However, if the marginal costs can be maintained at a minimum, there will not have to be such a marked increase in prices. With the present economy and more companies entering the market in competition, the prices will decrease.
c. Referring to question ‘b’, if the marginal costs can be kept at a reasonable state, the prices will not have to go up as much. This being the case, the company will stand a better chance of having a long-run profit. However, with the rising costs of materials and inputs, the companies will, in the long-run, see a decrease in profits. Increased competition will eliminate economic profit.
Chapter 12, Applied Problem, 5
This can be accomplished by providing several cases of...