1. In the political spin industry, firms face a fixed cost of entry of $3,000. These...

Transcribed Image Text:

1. In the political spin industry, firms face a fixed cost of entry of $3,000. These firms sell Beautiful Statements on the current political situation. Beautiful Statements can be produced at zero marginal cost. There is plenty of demand for Beautiful Statements, which can be represented as Q=300-3P. a. If there are no other barriers to entry (outside of the fixed costs), how many firms will enter this market? What will be the maximum attainable profit for each of these firms? b. Suppose the number of firms identified in your answer to a) enter the market at the same time, and do not strike a cartel agreement. Will they charge the price at which both of them can maximize their profits? Why or why not? c. Suppose one firm enters the market first. Is it possible for it to set a price that will allow it to deter entry from further firms? Assume Beautiful Statements can be priced only in $1 increments. 1. In the political spin industry, firms face a fixed cost of entry of $3,000. These firms sell Beautiful Statements on the current political situation. Beautiful Statements can be produced at zero marginal cost. There is plenty of demand for Beautiful Statements, which can be represented as Q=300-3P. a. If there are no other barriers to entry (outside of the fixed costs), how many firms will enter this market? What will be the maximum attainable profit for each of these firms? b. Suppose the number of firms identified in your answer to a) enter the market at the same time, and do not strike a cartel agreement. Will they charge the price at which both of them can maximize their profits? Why or why not? c. Suppose one firm enters the market first. Is it possible for it to set a price that will allow it to deter entry from further firms? Assume Beautiful Statements can be priced only in $1 increments.

Answer rating: 100% (QA)

a To determine how many firms will enter the market and the maximum attainable profit for each firm ... View the full answer