Answers to chapter 11

Answers to chapter 11 - Solutions to End-of-Chapter...

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Solutions to End-of-Chapter Exercises Chapter 11 [26] Section 11.1 [26.1]: The Effects of Market Entry 1.1 marginal revenue, marginal cost 1.2 arrow down, arrow up, arrow down 1.3 arrow down, arrow down 1.4 decreased 1.5 a. An optimist would expect [1] the price to drop by only $1 to $8, [2] the average cost to increase by only $1, to $5, [3] the quantity to drop by only 1 unit, to 1,000. The optimist profit = 1,000 x [$8 - $5] = $3,000 b. zero 1.6 For the post-entry situation, profit should still be positive, so AC < $2. There is no reason to expect zero profit with only two firms. 1.7 The too-easy answer is n = [Market quantity = 3,0000] / [quantity per firm = 1,000] = 3 firms. Entry decreases the market price, so the market quantity will exceed 3,000. In the monopolistically competitive equilibrium, each firm operates on the negatively sloped portion of the average-cost curve, so the quantity per firm will be less than 1,000. For example, n = [4,000 / 800] = 5 firms. Section 11.2 [26.2]:
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Answers to chapter 11 - Solutions to End-of-Chapter...

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