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Chapter 26: Q. 26.4 - Learning Objectives (page 578)

Identify features of an industry that help or hinder efforts to form a cartel that seeks to restrain output and earn economic profits

Short Answer

Expert verified
  • Economic profit is calculated by deducting opportunity cost from accounting profit.
  • The opportunity cost is the investment that the company will have to forego in order to invest in the current opportunity.
  • When we talk about profit in a business, we usually mean accounting profit.

Step by step solution

01

Introduction of industry

  • A set of firms that produce/manufacture or handle the same sort of goods or service is referred to as an industry.
  • As a result, the term "industry" is applied to a group of smartphone makers. Industries are classified as secondary activity.
  • Manufacturing operations, for example, turn basic resources into more useful goods for consumers.
02

Step 2:Characteristics of the Industry 

  • Characteristics of the Industry To get a complete picture of an industry, it will be necessary to review reports from multiple sources..
  • The geographic scope of the industry, the boundaries of the industry, and the dominant economic characteristics of the industry are all key characteristics of the industry.
03

Economic profit 

  • Economic profit is calculated by deducting opportunity cost from accounting profit.
  • The opportunity cost is the investment that the company will have to forego in order to invest in the current opportunity.
  • When we talk about profit in a business, we usually mean accounting profit.

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Most popular questions from this chapter

Characterize each of the following as a positive-sum game, a zero-sum game, or a negative-sum game.

a. Office workers contributeS10each to a pool of funds, and whoever best predicts the winners in a professional sports playoff wins the entire sum.

b. After three years of fighting with large losses of human lives and materiel, neither nation involved in a war is any closer to its objective than it was before the war began.

c. Two collectors who previously owned incomplete and nearly worthless sets of trading cards exchange several cards, and as a result both end up with completed sets with significant market value.

Suppose that a company based in Dallas, Texas, confronts only four other rival firms. Its own market share is 35 percent, which ties it with the other largest producer and seller in the industry. The other three firms each have a 10 percent market share. What is the four-firm concentration ratio for this industry?

Understand how to apply game theory to evaluate the pricing strategies of oligopolistic firms

The table below shows recent worldwide market shares of producers of inkjet printers.

a. In this year, what was the four-firm concentration ratio in the inkjet-printer industry?

b. In this year, what was the seven-firm concentration ratio in the inkjet-printer industry?

Take a look at Figure 26-3. What is the total dollar amount of the typical perfectly competitive firm's economic incentive to join the proposed cartel, assuming that after the fact no firms cheat on the specified cartel agreement? Explain your reasoning.
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