Whereas not very many years ago, a couple of dozen…
This price fixing is often done by limiting the supply, causing an increase in price due to the high demand and zero competition. In addition, distinguish between diminishing returns from diseconomies of scale.In time the expansion of a firm could lead to diseconomies of scale, causing higher average total costs for the firm to endure.
Generally, it will always take time for the full supply response to a demand change to materialize, so long run elasticity’s are more elastic than in short run.In the short run, the industry supply curve represents the sum of all the individual firms marginal cost curves. If elasticity is greater than one, then supply is elastic. It is productive because participants can be selected that have knowledge, talent and cultural capital suited to each role. In addition, discuss how the policy affects the utility’s profits and costs.A type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry is defined as a Natural Monopoly. In order to practice price discrimination, it must be easy to separate customer into groups. Although earlier observers had noted this phenomenon, Smith’s writings commanded widespread attention and helped foster an awareness of industrial production and broaden its appeal.Stamping plants specialize in producing the formed metal parts that constitute the body of the automobile. If you continue to use this site we will assume that you are happy with it. If there is one firm that dominates the industry then that firm sets the price that allows them to maximize their profits and the other firms just behave like a competitive firm and takes that price as the market price and that is what they charge. This just adds to the irony that the duopolists may end up in the criminal dilemma again, only this time literally, instead of economically through their firms.
The long run supply curve is more elastic than the short run supply curve, causing it to be flatter. When they are accomplishing positive economic profit, there is a good incentive to expand to capture more profits. The profit maximizing output occurs where market price equals the firm’s marginal cost (P = MC). Cartels are known to restrict output quantities in order to raise prices, and consequently prices.
Methods of punishing cheating if it occurs can include using a Tit-for-tat strategy (taking the same action the other player took last period; the lightest punishment), or a Trigger strategy (which states you will cooperate until the other player cheats, then you can cheat forever; this is the most severe punishment to the cheater).Price signaling is a form of implicit collusion, often there is one firm that is the price leader and all the other firms follow what that firm does, which is used in game theory (although this is not likely to be done with only two players as in the case of a duopoly). Often failure is the result of not doing enough preparation work to ensure a successful business transaction and future financial gains before attempting to negotiate terms and legal acceptance. Also, economies of scale increase the gains from trade that could not be achieved simply through self-sufficiency or small scale production. The Utility industry (i.e. This enables them to have a monopoly on this product, giving them the opportunity to gain monetarily to award their entrepreneurial and innovative ingenuity and allow them to recoup costs involved in the creation, testing, research, and production of their patented product. Also, a common problem with larger firms is sometimes employees feel alienated or unappreciated and therefor do not care to work as efficiently as they possibly could because they have no incentive.Diseconomies of scale occurs when production is less than in proportion to inputs; meaning there are inefficiencies within the larger firm or industry that are resulting in rising average costs.
Hence, through such efficiency, time and money could be saved while production levels increase.
Other articles where Specialization is discussed: division of labour: The intensive specialization in industrial societies—the refinement and simplification of tasks (especially associated with a machine technology) so that a worker often produces only a small part of a particular commodity—is not usually found in nonindustrialized societies. ), specialized inputs (machinery and labor), better techniques and organizational inputs (clear cut chain of command), and learning inputs (with time learning processes related to production, selling, and distribution can result in improved efficiency with more practice).
This is why the duopolists face a dilemma; should we continue to compete in a price war or should we collude to fix prices illegally so we can make a profit.
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