Economics There Are a Few Essay

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To understand this, consider when the curve begins on the upside. At that point, the firm may need a new factory, increasing AC beyond a certain point of output; or other inefficiencies could emerge relating to the costs of managing a larger organization. Essentially, on the downside efficiencies are improving as the output nears capacity. When output hits capacity, the LRAC begins to move upwards again.

5. The new camera explain is part of price discrimination and there are three distinct factors at work when considering this form of price discrimination. The first is strictly marketing -- when new technology arrives in the marketplace the first buyers are typically early adopters. These are more driven by the technology than by the price, so they have low price sensitivity. Firms take advantage of this by charging more, to recoup more of their investment as early as possible.

The second reason is that during the market entry phase, the average cost of production is high. As the camera becomes more popular, and sells more units, the average of cost of production will decrease. This allows the company to sell the camera at increasingly low prices. The third is related to competition. Initially, the product has a high degree of differentiation that effectively creates a monopoly for the product. There are no others like it, so the firm can charge monopoly rents.

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As the technology is imitated by competitors, the firm no longer can charge monopoly rents; the market shifts into monopolistic competition and the firm must lower its prices accordingly. It is for each of these reasons that the price discrimination exists.

6. The DoJ and FTC are proposing new merger guidelines. Part of the underlying philosophy is that they want to give officials more discretion, but also to make the laws clearer for companies as well. The previous method involved an examination of the industry, the firms' power within the industry and what effect the merger was likely to have on prices within that industry. If it was decided that the merger would negatively impact consumers, it could be rejected. The new guidelines clarify that a merger evaluation does not use a single methodology, that there are several categories of evidence used, outlines the concentration levels that would lead to added scrutiny and how antitrust markets are defined. The new guidelines provide additional clarity with respect to the process, and this should help firms avoid antitrust trouble in the future. In addition, the new guidelines provide the DoJ with greater flexibility to make determinations using a multitude of different criteria.

Appendix A: Q2 Graph of supply and demand….....

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