All categories

3 years ago

Some economists argue that competitive price-searcher markets are inefficient because

Business

1 answer:

inna [77]3 years ago

8 0

Answer:

A competitive price-searcher market is a market where there are low entry or exit barriers, and the suppliers can determine the price of their products. Some economists believe that this type of market is inefficient because the suppliers are not able to sell enough output in order to minimize their average costs. Since the demand is very elastic in price searcher markets, any price change will cause a drastic change in the quantity demanded.

Price searcher markets share a lot of similarities with perfect competition markets, the main difference is that suppliers and consumers are not price takers. This means that any supplier can change their sales output by changing their price, which leads to greater competition.

You might be interested in

Kitchen chairs are purchased wholesale for $36 each by a discount furniture store. Then, the store marks up the chairs by 60 per

tia_tia [17]

Answer:

46.08 * 2 = 92.16

Explanation:

starts at 36, mark up by 60%

36 + 0.60(36) = 36 + 21.60 = 57.60

now they mark it down by 20%

57.60 - 0.20(57.60) = 57.60 - 11.52 = 46.08

46.08 * 2 = 92.16

3 0

2 years ago

The idea that "the invisible hand" of competition sets prices and determines quantities produced in a market economy was the pri

Orlov [11]

Adam Smith in his book 'Wealth of Nations'

8 0

4 years ago

Suppose that you just paid $76,000 for a security that will make its first payment to you in 7 years from today. It will continu

iogann1982 [59]

Answer:

$5,346.98

Explanation:

Initial cash flow = 76,000

Discount rate = 5%

Suppose the C.F. in the 7th year is x which will flow till perpetuity

Present value of annual cash flow till perpetuity = Annual cash flow / Discount rate

PV at the 7th year = x/0.05

Discount factor = (1 + r)^n

Discount rate = 5%

Years D. factor Cash flows

0 0 76,000

1 0.952381 -

2 0.907029 -

3 0.863838 -

4 0.822702 -

5 0.783526 -

6 0.746215 -

7 0.710681 x/0.05

So, 76000 = 0.710681 *(x/0.05)

76000 / 0.710681 = x / 0.05

x = 76000 / 0.710681 * 0.05

x = 5346.98408990813

x = 5346.98

Hence, if the interest rate is 5%, $5346.98 will be received annually from the 7th year

7 0

3 years ago

WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently ha

den301095 [7]

Answer:

The firm's optimal capital structure is 80% Debt and 20% Equity.

The WACC at this optimal capital structure is 10.28%.

Explanation:

Note: See the attached excel file the computation of the weighted average cost of capital (WACC) at the optimal capital structure. Also note that the data in the question are merged together but they are sorted in the attached excel file before answering the question.

The optimal capital structure of a firm can be described as a combination of debt and equity financing that is the beat in which market value of the firm is maximized while its cost of capital is minimized.

Using the weighted average cost of capital (WACC), the optimal capital cost capital structure occurs at a point where the WACC is the lowest.

From the attached excel file, the lowest WACC is 0.1028, or 10.28%. At this firm Market Debt- to-Value Ratio (wd) which is debt is 0.80 (i.e. 80%), and Market Equity-to-Value Ratio (ws) which is equity is 0.20 (i.e. 20%).

Therefore, the firm's optimal capital structure is 80% Debt and 20% Equity.

The WACC at this optimal capital structure is 10.28%.

Download xlsx

5 0

3 years ago

An investor owns $3,000 of Adobe Systems stock, $6,000 of Dow Chemical, and $7,000 of Office Depot. What are the portfolio weigh

Drupady [299]

Answer:

0.1875; 0.375; 0.4375

Explanation:

Given that,

Adobe Systems stock = $3,000

Dow Chemical = $6,000

Office Depot = $7,000

Total Value of stock:

= Adobe Systems stock + Dow Chemical + Office Depot

= $3,000 + $6,000 + $7,000

= $16,000

Portfolio weights of Adobe Systems stock:

= Value of Adobe Systems stock ÷ Total Value of stock

= $3,000 ÷ $16,000

= 0.1875

Portfolio weights of Dow Chemical stock:

= Value of Dow Chemical stock ÷ Total Value of stock

= $6,000 ÷ $16,000

= 0.375

Portfolio weights of Office Depot stock:

= Value of Dow Chemical stock ÷ Total Value of stock

= $7,000 ÷ $16,000

= 0.4375

3 0

3 years ago