Draw a Diagram for a Firm in an Industry in Which

question 28

Essay

Draw a diagram for a firm in an industry in which the fixed costs are high and the marginal cost is low and constant.
(A)Would you expect to find many firms in this industry? Explain.
(B)Show that a firm in this industry is not producing efficiently.
(C)In this example,should regulators require this type of firm to produce at the level at which price equals marginal cost? Why? What types of regulation would enable the firm to produce at a more efficient level of output and yet stay viable in the long run?

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Definitions:

Depreciation Expense

An accounting method to allocate the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Residual Value

The estimated value of an asset at the end of its useful life.

Double Diminishing-Balance

A method of accelerated depreciation that computes depreciation at double the rate of the straight-line method.

Carrying Amount

The book value of assets or liabilities as recorded in the financial statements, after accounting for depreciation, amortization, or impairment.