Decision making-competitive market

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Reference no: EM1316640

In an article on the steel industry, The Wall Street Journal noted that as steel prices were falling, steelmakers were not cutting production since "steelmakers can't afford to lose any sales because their costs, especially their fixed costs, are so high." What does this statement mean? Explain.

2. Managerial Decisions for Firms with Market Power

Tots-R-Us operates the only day-care centre in an exclusive neighbourhood just outside of Washington, D.C. Tots-R-Us is making substantial economic profit, but the owners know that new day-care centres will soon learn of this high profitable market and attempt to enter the market. The owners decide to begin spending immediately a rather large sum on advertising designed to decrease elasticity. Should they wait until the new firms actually enter?

Explain how advertising can be employed to allow Tots-R-Us to keep price average above cost without encouraging entry.

Reference no: EM1316640

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