There are three leading manufacturers of smart phones in Techland. Their products are considered to be perfect substitutes
a) Will these firms earn zero economic profits in the long run? Explain your answer.
b) What can the firms do to earn maximum profit?
a) The market for smart phones in Techland is an example of an oligopoly with homogeneous products. Firms in an oligopoly with homogeneous products often enter into a price war to increase their market share. Each firm cuts its price slightly below its rival's price to capture a larger market share. Because their goods are perfect substitutes, the price-cutting firm faces the entire market demand. This continues as long as the rival's price exceeds marginal cost. In equilibrium, all the firms charge a price equal to marginal cost and earn zero economic profits.
b) The firms can enter into a collusive agreement and decide to set prices jointly. They can coordinate and act like a monopoly. In this case, each firm will charge a price equal to that charged by a monopolist. At this price, each firm will face one-third of the market demand and earn one-third of the total profit earned by a monopolist.
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Answer the following statements true (T) or false (F)
1. According to the Department of Commerce, a person living alone constitutes a single-person family. 2. Statistics indicate that because of government transfer programs, households in the four lower quin tiles now receive a much larger share of aggregate income than in 1970. 3. The Lorenz curve measures the degree to which a nation’s income is distributed. 4. The Lorenz curve measures the per capital annual income of individuals. 5. The value of the Gini coefficient has increased since the 1970s.
Import substitution is a program promoting local production of products that would otherwise be imported.
a. true b. false
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A) the demand for paper is inelastic. B) the demand for paper is elastic. C) the supply of paper is inelastic. D) the supply of paper is elastic.