After you have studied Economics in the News on PP. 328-329,...

After you have studied Economics in the News on PP. $328-329$, answer the following questions. a. What are the features of the market for apps that make it competitive? b. Does the information provided in the news article suggest that the app market is in longrun equilibrium? Explain why or why not. c. How would an advance in development technology that lowered a developer's costs change the market supply and the developer's marginal revenue, marginal cost, average total cost, and economic profit? d. Illustrate your answer to part (c) with an appropriate graphical analysis.

After you have studied Economics in the News on
PP. $328-329$, answer the following questions.
a. What are the features of the market for apps that make it competitive?
b. Does the information provided in the news article suggest that the app market is in longrun equilibrium? Explain why or why not.
c. How would an advance in development technology that lowered a developer's costs change the market supply and the developer's marginal revenue, marginal cost, average total cost, and economic profit?
d. Illustrate your answer to part (c) with an appropriate graphical analysis.

Key Concepts

Competitive Markets

Competitive markets are defined by the presence of many buyers and sellers, free entry and exit, and the availability of information. In such markets, no individual participant has the power to influence market prices, which are instead determined by the aggregate interactions of supply and demand. This ensures that firms are price takers and operate efficiently, with economic profit driven to zero in the long run.

Long-Run Equilibrium

Long-run equilibrium in a competitive market occurs when firms have no incentive to enter or leave the market because each firm earns just enough profit to cover its costs, including opportunity costs. In this state, productive and allocative efficiencies are achieved, and adjustments in entry or exit drive economic profits to zero, balancing supply with consumer demand.

Technological Advancement

Technological advancements that lower production or development costs shift a firm's cost structure, primarily by reducing marginal and average costs. This change can lead to an increased market supply as firms are able to produce more at a lower cost, altering the firm’s position relative to cost curves and potentially increasing economic profits in the short run until a new market balance is established.

Marginal and Average Cost/Revenue Analysis

Marginal cost is the additional cost of producing one more unit, while marginal revenue is the extra revenue earned from that unit. The relationship between marginal and average costs is critical for profit maximization. Firms adjust production where marginal revenue equals marginal cost. Reductions in costs due to technological advances shift these curves, influencing economic profit by affecting both the cost structure and the output level at which equilibrium occurs.

Graphical Analysis

Graphical analysis in economics involves plotting the cost curves (marginal cost, average total cost) and revenue curves to visually assess market changes. When technology reduces production costs, these graphs typically show a downward shift in the marginal and average total cost curves. This helps illustrate changes in supply conditions and the resulting impact on economic profit and market equilibrium.

Transcript

00:01 Today we'll be solving problem 22 from chapter 12 of economics 12 edition.

00:06 This question references the economics in the news section that you could read previously in the chapter.

00:13 The first part of the question wants to know, what quality of the phone applications market makes it competitive.

00:20 So there's a few reasons why the app market is so competitive.

00:24 One is that apps come in thousands of varieties, and so it's a highly differentiated market.

00:29 It makes the market highly competitive.

00:32 The number of phone users has also created a giant demand for apps, and the demand has exceeded the supply created by the entrance of many new app developers.

00:42 And lastly, development tools are constantly improving, and so the cost curve is always moving down.

00:49 The second part of the question wants to know, if the article is suggesting that the app market is currently in long on equilibrium.

00:57 And the answer to that is absolutely no.

01:00 The demand for apps is still driving the entrance of new developers, signaling that they're not at a zero profit point.

01:08 They're still making economic profit.

01:10 The diverse possibilities of apps, it suggests the long run equilibrium is very far away or may never even be reached.

01:18 And so the article is not suggesting that.

01:20 We're definitely not at a long -long equilibrium where app developers are making zero economic profit.

01:25 The last part of the question wants to know that if dev toolkits are improving, how is that going to change the market supply, developers marginal revenue, marginal cost, average total cost, and economic profit? so here i have the two plots, and the first is the supply and demand for apps in the market, as well as the cost curves for a certain developer.

01:52 And so we know that if devtool kits are improving, that's an advancement in technology...

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