Assume that you are hired as an analyst at a major New Y
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Assume that you are hired as an analyst at a major New York consulting firm. Your first assignment is to do an industry
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Assume that you are hired as an analyst at a major New York consulting firm. Your first assignment is to do an industry analysis of the tribble industry. After extensive research and two all-nighters, you have obtained the following information: Long-run costs: Capital costs: $5 per unit of output Labor costs: $2 per unit of output No economies or diseconomies of scale Industry currently earning a normal return to capital (profit of zero) Industry perfectly competitive, with each of 100 firms producing the same amount of output Total industry output: 1.2 million tribbles Demand for tribbles is expected to grow rapidly over the next few years to a level twice as high as it is now, but (due to short-run diminishing returns) each of the 100 existing firms is likely to be producing only 50 percent more. a. Sketch the long-run cost curve of a representative firm. b. Show the current conditions by drawing two diagrams, one showing the industry and one showing a representative firm. c. Sketch the increase in demand and show how the industry is likely to respond in the short run and in the long run
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