Eco 550 Industry Assignment

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1. Describe the industry and explain the general pattern of change of the particular market model. ANS:- The industry i have chosen to describe here is the automobile industry in USA. Since automobile industry is very large and heterogeneous I have taken only the segment cars to analyze in this paper. In the early years, automobile industry was once dominated by a few makers like Ford and GM manufacturing wide variety of cars suitable to different consumer markets. But the pattern change happened with the oil shock of 1970s resulting in consumers, industrialists and government to rethink on gas guzzlers and trend shifting towards more fuel efficient vehicles. This led to the advent of more fuel efficient and family cars from Japan targeting lower to upper middle class families. The highly fuel efficient Japanese cars took US market by storm and 80s automobile market became much more oligopolistic than earlier years. Since mid-90s, the trend shifted towards greener vehicles and new research and innovative vehicles became the mantra of the industry. Many prototypes of electric powered vehicles were introduced and almost all manufactures introduced their own hybrid vehicles that run on gasoline as well as electric power. Currently the car market is evolving into a more consumer and environmental friendly with new advanced inbuilt facilities like GPRS, Use of Expert Systems, Fuzzy logic etc. The R&D involved has translated to greater sunk costs for all the companies and competition is intense between the companies to stand out in the crowded car market. Through the introduction of newer cars with newer technologies, companies are focusing on higher marginal revenue and lower marginal cost of production. 2. Hypothesize the basic short-run and long-run behaviors of the model in the industry you have chosen in a “market economy.” ANS:- In the short run the early

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