Ass 2, q 2,4

Ass 2, q 2,4 - problem with focus on efficient new plants...

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2. By conventional wisdom the two incumbent firms are too inefficient to be profitable and thus are doomed to failure. Marginal costs of these firms are too high as a result of inefficient factories and transportation infrastructure for these firms to be competitive in the world market. 4. This resembles the rise of the Japanese steel industry with the first two firms representing pre- initiative conditions (One firm is losing money while the other is only drawing even.) As stated in the #2 answer, the industry was incapable of cost effective production for competition in the world market. Japan decided to consolidate its steel industry under Shin Nippon Steel Corporation (firm 3 in this
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Unformatted text preview: problem) with focus on efficient new plants M(3)=1 while M(1,2)=3,2. State coordination facilitated the massive amount of investment required to build these plants and policy including tax benefit, favorite loans made this as affordable as possible. Meticulous planning and long-term centralized procurement lower production costs . The result is production on a larger scale than before Q(3)=25, with much greater efficiency M(3)=1. Although the initial investment is quite large, the increased capacity enables Nippon Steel to be profitable with the lower marginal cost....
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