Suppose the paper industry is in long-run competitive equilibrium and the demand for paper increases. If the industry has external diseconomies of scale, what will happen to the price of paper in the long run?
What will be an ideal response?
The price of paper will rise. First, the increase in demand will push the price up. This will lead to positive profits in the paper industry and new firms will enter. Because the industry has external diseconomies of scale, as new firms enter, the long-run average cost curves of firms will shift up. The new long-run price of paper will be at the minimum point of the new long-run average cost curve.
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Suppose that the exchange rate between British pounds and U.S. dollars is originally $2.50 per pound. If it then changes to $3 for 1 pound, imports of British goods into the U.S. tend to: a. rise
b. fall. c. stay the same. d. change in an indeterminate direction.
Mike wants to open his own repair shop, and is considering using his savings of $30,000 to get it started. He is currently earning 3 percent interest on his savings. His friend Bob calls him and asks to borrow $30,000 to start up a bagel shop; Bob offers to pay him 5 percent interest if he loans him the money. If Mike were to use the money to open his own repair shop, how can he accurately account for his costs?
A. Mike must consider the $900 in forgone interest on his savings as an explicit cost. B. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost. C. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an explicit cost. D. Mike must consider the $900 in forgone interest on his savings as an implicit cost.
Transfer payments are
a. included in GDP because they represent income to individuals. b. included in GDP because they eventually will be spent on consumption. c. not included in GDP because they are not payments for currently produced goods or services. d. not included in GDP because taxes will have to be raised to pay for them.
If the marginal cost of the 5,000th unit is $0.06 and the average total cost of the 5,000th unit is $0.10:
A. total cost is falling. B. average variable cost is falling. C. average total cost is falling. D. average fixed cost is rising.