Question

Suppose an economy produces cell phones and GPS devices in perfectly competitive industries. The economy is currently operating at a point on its production possibility frontier. The economy will most likely move to a less-desirable point on the production possibility frontier if more firms enter the GPS device industry. O a single firm gains control over the production of cell phones. more firms enter the cell phone industry. more firms enter both the GPS device industry and the cell phone industry,

Answer 1

If a single firm gains substantial market power, then the economy will be inefficient and it will move to a less-desirable point on the PPF. Hence the answer will be:

a single firm gains control over the production of cell phones

In a monopolistically competitive industry, firms are:

small relative to the total market.

When there is a decrease in demand, then demand curve shifts leftward from D1 to D2. When there is an increase in supply of potatoes, then supply curve shifts rightward from S1 to S2.

In panel 1, leftward shift of demand curve is higher than the rightward shift of supply curve, then as the economy moves from point A to B, then equilibrium quantity declines from Q1 to Q2 and the equilibrium price declines from P1 to P2.

In panel 2, leftward shift of demand curve is lower than the rightward shift of supply curve, then as the economy moves from point A to B, then equilibrium quantity increases from Q1 to Q2 and the equilibrium price declines from P1 to P2.

In panel 3, leftward shift of demand curve is equal to the rightward shift of supply curve, then as the economy moves from point A to B, then equilibrium quantity remains unchanged at Q and the equilibrium price declines from P1 to P2.

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Hence in all three cases, equilibrium price declines. Hence the answer will be:

a decrease in equilibrium price.

Average fixed costs or FC/Q falls as Q or level of output rises. Hence the answer will be:

fall as output rises