Consider a firm that has operated for a number of years as the only firm in a market that is, as

a monopoly. The firm sells a single product that has a short market life: everything that the firm

makes during a period must be sold during that period, because at the end of the period the

product will have no market value. If the firm produces very large quantities, the market will be

flooded, the market price will drop, and profits will fall, perhaps below zero. It is important for

the firm to have accurate information about its own production costs. If the market price is

driven down by high production quantities, can the firm still make a profit? The answer depends

on how high its unit production costs are. In addition, the firm may want to know how high its

costs actually are in order to know how much to spend on a major cost-reduction program.

Suppose III l, xISLIIIg III Iow Taces competition from one other firm, instead of being the only firm in the market. Do you think that getting accurate cost information will be less important or more important now that the firm has a competitor? 2 3 | 4 | 5 | 6 | 7 | 8 | 9 | 1 / Extremely Less Important Now | 10 Extremely More Important Now 2) Suppose that two more firms enter the market, so that the firm now faces competition from three other firms. Now how important is it for the firm to have accurate cost information, compared with when the firm had only one competitor? 2 3 4 5 6 7 8 9 1 1 Extremely 10 Extremely Suppose III l, xISLIIIg III Iow Taces competition from one other firm, instead of being the only firm in the market. Do you think that getting accurate cost information will be less important or more important now that the firm has a competitor? 2 3 | 4 | 5 | 6 | 7 | 8 | 9 | 1 / Extremely Less Important Now | 10 Extremely More Important Now 2) Suppose that two more firms enter the market, so that the firm now faces competition from three other firms. Now how important is it for the firm to have accurate cost information, compared with when the firm had only one competitor? 2 3 4 5 6 7 8 9 1 1 Extremely 10 Extremely