Answer Happy

2. (25p) External Economies of Scale. Lobbyists for the shipbuilding industry has been working hard to try and convince policymakers that shipbuilding exhibits external economies of scale. You are asked to assess whether they have a point by using evidence from the following episode: due to a boom in trade in 2017, demand for merchant ships increased substantially, Draw twoo supply-and-demand diagrams, one for an industry that does exhibit external economies of scale, and one for an industry that does not. Add a positive demand shock to both diagrams, Use them to argue that we should be able to establish whether the shipping industry has external economies of scale based on observable changes in outcomes. What should we be looking for? 3. (20pt) Monopoly. A monopolist faces a linear demand curve and has a cost structure given by a fixed cost F and a constant marginal cost c. Use a diagram to illustrate profit-maximization behavior for this firm. Shade with 45° lines the area representing operating profits and fill with circles/bubbles the area presenting profits. Label curves, key areas, and axes, as needed.