# BEA683 Economics For Managers Student158431 Essay

903 Words Feb 19th, 2015 4 Pages
BEA683 Economics for Managers

Reading Gans, Core Economics for Managers, Chs. 1 and 2.

C&T, Ch. 11

JiTT Assignment 3: Decision Making and Costs

In order to prepare for the class on March 20 you are required to read on individual decision making and costs answer the following questions

_______________Yanqiz__________(Name)________158431____________(Student ID)

Submission Instructions:

Your assignment must be in Word format. You must submit your assignment through the ‘JiTT Assignment-Submission’ icon located on the home page of the BEA683 MyLO site. This assignment will not be accepted after 12 noon on Tuesday, March 18. Please ensure you include your name and ID number.

Question 2

8. a. In the highly competitive TV manufacturing industry, a new innovation makes it possible to cut the average cost of a 50-inch plasma screen from \$1,000 to \$400. Most TV manufacturers quickly adopt this new innovation, earning massive short run profits. In the long run, what will the price of a 50-inch plasma TV be?

The price will fall to \$400, because P = AC in the long run in a competitive industry. b. In the highly competitive memory key industry, a new innovation makes it possible to cut the average cost of a 20-megabyte memory key, small enough to fit in your pocket, from \$5 to \$4. In the long run, what will the price of a 20-megabyte memory key be?
P = \$4 in long run. c. Assume that the markets in parts (a) and (b) are both constant cost industries. If demand rises massively for these two goods, why won’t the price of these goods rise in the long run?

The price won’t rise because new firms will enter (and some current firms will expand) keeping the average cost equal to the new, lower value. That’s what it means to be in a constant cost industry. d. In constant cost industries, does demand have any effect on price in the long run?

No, it doesn’t. Demand has an effect on quantity but not on price in constant cost markets.

e.When average cost falls in any competitive industry, regardless of cost structure, who gets 100 percent of the benefits of cost cutting in the long run: consumers or

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