Imagine you are an analyst for a major car manufacturer.You need to consider whether the company should attempt to expand its car line into a new space: sporty cars aimed at the active lifestyle consumer.

Currently there are 2 other major car manufacturers making this type of car.You think that your company can develop, design, and produce the car for an average cost of $25,000 per car.Right now, in the market, the average price of this type of car is $35,000.

Thinking about the market structure, then analyze and explain whether the company should enter the sporty car segment of the market.You should make any assumptions explicit and consider the market structure of the car industry as well as the potential response of competitors.Feel free to draw any diagrams of models you feel will help explain your ideas but be sure to explain all economic concepts clearly.

Here are the economic concepts of Microeconomics you may use to analyze and explain. (You do not have to use all the concepts below, just find the points you think can help you to analyze and explain.)

How Taxes and Subsidies Change Market Outcomes. Price Regulations. Quantity Regulations.

Evaluating Public Policies. Measuring Economic Surplus. Market Efficiency. Market Failure and Deadweight Loss. Beyond Economic Efficiency.

Identifying Externalities. The Externality Problem. Solving Externality Problems. Public Goods and the Tragedy of the Commons.

Monopoly, Oligopoly, and Monopolistic Competition. Setting Prices When You Have Market Powe. The Problem with Market Power. Public Policy to Restrain Market Power.

Revenues, Costs, and Economic Profits. Free Entry and Exit in the Long Run. Barriers to Entry.

Price Discrimination. Group Pricing. The Hurdle Method.

Adverse Selection When Sellers Know More Than Buyers. Adverse Selection When Buyers Know More Than Sellers. Moral Hazard: The Problem of Hidden Actions.

Please make the below answer explain more particular. There are still some concepts didn't be involved in. Also you can use graph to explain. Thank you so much.

The market structure of the car industry is characterized by oligopoly. In oligopoly, there are few large firms that dominate the market. In the above case, it is profitable for the company to enter the sporty car segment of the market, given low barriers to entry. This is because price is above the average cost of producing a new car. The company then must decide whether to compete with the incumbent firms or collude with them.

Explanation:

The market structure of the car industry is characterized by oligopoly. In oligopoly, there are few large firms that dominate the market. These firms are inter-dependent on each other in taking price and output decisions. However, in this market structure, there are high barriers to entry. This makes entry of new firms difficult even if the existing firms are making an economic profit. This restricts innovation and causes prices to be higher for consumer than it would have been in perfect competition case.

In the above case, it is profitable for the company to enter the sporty car segment of the market, given low barriers to entry. This is because price is above the average cost of producing a new car. However, given that there are only 2 other firms in the market, these firms will take notice of this new entry. The company then must decide whether to compete with the incumbent firms or collude with them.

Another decision would be whether it should change the price or keep it constant. It may implement a new strategy or wait to see the reaction of the rivals first and then respond.

In case of collusion, the market structure will become similar to monopoly. But there will be incentives to cheat.

In case of competition, each firm will act independently. Usually, a firm in oligopoly market structure will avoid price competition. It rather competes on other grounds such as quality etc.