Economics- Bagel Industry

1. Bagel restaurant is likely to be a constant effort because it is in the perfect competition industry. Bagel restaurant is in the perfect competition industry because in that respect are few entry barriers in this industry. Anyone could move in this industry. In the short-run, existing firms might get dinero just as the case of Georges bagel chain. However, in the long-run, the profit attracts spic-and-span competitors into this industry, causing monetary value competition. Because each firm allow for produce at the point where P=LRMC, the price competition will force each firm to produce at the lowest point of the LRAC cut off.Thus, each firm in the bagel industry faces the same cost which equals to the price of the bagel, meaning that bagel restaurant is in a constant cost industry. To maximize profit, firms have to produce at the point where P=LRMC. Supply curve shows the corresponding quantity at any given price. Thus, LRMC is the long-run supply curve for each firm. For firms in the constant cost industry, they face a constant LRMC, which implies that the slope of the long-run supply curve is zero. By contrast, increasing cost industry face increasing LRMC curve, which implies that the slope of the long-run supply curve is positive. . Firms that washbowl produce at decline price are those who have lower MC. Lower MC ordinarily implies that these firms hold some superior factors that other firms dont have. It seems that firms with superior factors can wee-wee economical profits. However, other firms will compete for these superior factors in order to also produce at lower cost, which increase the opportunity cost of holding these superior factors. Thus, firms with lower MC cant make economic profit because the producer surplus from lower MC has been used to acquire the superior factors. 3.It is a good idea for George to enter the cranberry industry. The reasons are as following 1)The cranberry industry shows steady growth rate. 2)George has t he opportunity to acquire the superior asset in this industry sandy peat bogs. 3)Sandy peat soil is not readily acquirable in supply, which cause the entry barrier in this industry. Thus, although future profits might attract new competitors into this market as the case in the bagel restaurant, the limited supply of peat bogs makes it difficult for competitors to immediately enter this industry.Even the price competition happens in the future, George can still produce at the lower price because he owns the superior asset. Finally, as the case in previous example, although George can produce at lower price, he can make only the normal economic profit. This is because profit will cause competitors to compete for the land, which causes the compass of the sandy peat bogs. As a result, the opportunity cost of Georges holding the land will increase, which equilibrise the producer surplus of George.