Please show step by step calculations for questions where you are using

calculations to get an answer& list references in APA format.

1 The four questions refer to the following table in which columns 1, 2, and 3
give the economically efficient combinations of labor and capital for various
output levels. The price of capital is $50, and the price of labor is $30.
(1) (2) (3) (4) (5) (6)
Long- Long-Run Long-Run
Run
Output Capital Labor Average Marginal
Total Cost Cost
Cost
20 8 12 760 38 760
40 15 20 1350 33.75 590
60 25 35 2300 38.33 950
80 40 50 3500 43.75 1200
𝑳𝑻𝑪 = 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 ∗ 𝒖𝒏𝒊𝒕𝒔 𝒐𝒇 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 + 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒍𝒂𝒃𝒐𝒓
∗ 𝒖𝒏𝒊𝒕𝒔 𝒐𝒇 𝒍𝒂𝒃𝒐𝒓
𝑳𝑨𝑪 = 𝑳𝑻𝑪/𝒐𝒖𝒕𝒑𝒖𝒕
𝑳𝑵𝑪 = 𝑳𝑻𝑪/𝒄𝒉𝒂𝒏𝒈𝒆𝒔 𝒊𝒏 𝒐𝒖𝒕𝒑𝒖𝒕

Using the above table, answer the following questions.

 Economies of scale exist through 40 units of output because longrun

average cost is lowest at 33.75.
 At 20 units of output LTC = $760 and LAC = $38. Between zero and
20 units LMC = $760
 At 40 units of output LTC = $1350 and LAC = $33.75. Between 20
and 40 units LMC = $590.
 Diseconomies of scale exist beyond 40 units of output because LAC is
decreasing.
2 Grocery stores and gasoline stations in a large city would appear to be examples of
competitive markets: There are numerous relatively small sellers, each seller is a
pricetaker, and the products are quite similar.

 How could we argue that these markets are not competitive?

We could argue that grocery stores and gas stations are not competitive considering
that most of them have a relatively small geographic range. They therefore do not
attract consumers from very far away and thus serve a small locality, and thus do not
compete with the grocery stores or gas stations across town (Mankiw, 2014).

 Could each firm face a demand curve that is not perfectly elastic

No; since customers aren't willing to spend their morning visiting each grocery store or
gas station in a large city to find the best deal, then each firm's demand curve will be
perfectly elastic since consumers do not have full information.

 How profitable do you expect grocery stores and gasoline stations to be in the
long run?

Even with a small amount of market power, the barriers of entry and exit are very low
meaning that in the longrun many sellers will enter the small markets. Long-run
profits will likely be driven down close to zero.

3 Airline industry experts generally believe that because of the "highly

competitive" nature of U.S. airline markets, it is usually impossible to pass
on higher jet fuel prices to passengers by raising ticket prices.

 What factors do you suppose contribute to making U.S. airline

markets "highly competitive"?

Due to the high competitiveness of the airline market, the industry is

unable to pass the rising fuel costs to its customers due to the following
factors:

a) There are many airline firms offering the same price and if one of
the firms raises the prices, it loses customers to the others.
b) The barriers of entry and exit are relatively low as it is a free market.
c) The customers have complete information on the prices in the
industry.
 Accepting the premise that U.S. airline markets are indeed highly
competitive, analyze in both the short run and long run the difficulty of
raising ticket prices when jet fuel prices rise.

In the short-run, the airline industry may find it difficult to increase their prices due to
the competition in the market. However, the first-mover disadvantage exists in the
market in that the first firm to raise prices loses customers in the competitive industry.
It will experience a loss if it tries to charge what is prevalent in the idnsutry and
consequently, given the cost, revenues will decline and the firms will incur losses. In
this regard, the firms will be forced to take the market prices. In the short-run, the firm
may accrue profits owing to the econnomic advantages which will be lost when the
market gains flexibility and gets rid of the rigidity bringing the market to equilibrium
with zero economic profit in the longrun (Hüschelrath & Müller 2012).
References
Hüschelrath, K., & Müller, K. (2012). Low Cost Carriers and the Evolution of the
Domestic U.S. Airline Industry. Competition and Regulation in Network
Industries, 13(2), 133–159. https://doi.org/10.1177/178359171201300202
Mankiw, N. G. (2014). Principles of economics. Cengage learning: USA.