3. In a perfectly competitive market, the firms are price takers since are many firms due to no barriers to entry. The price is determined by the interaction of the demand and supply curve. Since none of the individual firms can affect price they accept the price determined by the market. So the profit maximizing level of production occurs when marginal cost equals marginal revenue. This leads to a pricing strategy where price equal to the marginal cost (P=MC). In the short-run firms can expect to have profits, however, in the long-run as more firms enter, the profits are competed away leaving firms with zero economic profits.
As far as monopolies are concerned, they are price-makers as there is not entry of another firms and the monopoly is the sole supplier. This gives the m...
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...st declines. This helps them from keeping their cost low and charge prices that are too low for new competitors to stay in business, hence preventing new theaters from entering. In addition to economies of scales, another barrier to entry could be the ownership of key input. Since both the theaters have been in business for a long times they already have established connections which help them get movies to their theaters and they already have infrastructure and the recognition to attract customers. Their movies experience and familiarity with the customers will make it quite difficult for a new theater to enter and create brand recognition for itself. These barriers to entry could have a strong impact on preventing new competition as these theaters are already well recognized and have the ability to charge lower prices that would be highly difficult to compete with.
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