Suppose that firms in a perfectly competitive market share a market demand curve given by Q...

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Suppose that firms in a perfectly competitive market share a market demand curve given by Q = 1,200 - 0.2P. Each firm's cost function is given by C = 4,000Q. If one firm discovers a new way of organizing production such that its marginal cost curve falls, by how much would it need to fall in order to drive all of the other firms out of the market? Now, let that threshold level of marginal cost (that drives all other firms from the market) be denoted $Z, and suppose that the innovating firm succeeds in driving its marginal cost down to $Z - $300. Please compute the gain in consumer surplus in this market that results from this innovation. Suppose that firms in a perfectly competitive market share a market demand curve given by Q = 1,200 - 0.2P. Each firm's cost function is given by C = 4,000Q. If one firm discovers a new way of organizing production such that its marginal cost curve falls, by how much would it need to fall in order to drive all of the other firms out of the market? Now, let that threshold level of marginal cost (that drives all other firms from the market) be denoted $Z, and suppose that the innovating firm succeeds in driving its marginal cost down to $Z - $300. Please compute the gain in consumer surplus in this market that results from this innovation.

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In a perfectly competitive market each firm takes the market price as given and adjusts its output a... View the full answer