Reference no: EM133126054

The graph below shows the price of solar panels for electrical generation in New York City over the nearly 3.5 years from June 2018 through the end of November 2021. The price of solar panels is measured in dollars per square meter.

Here are some important facts about this market:

• The market tends to work by having buyers of panels calling a supplier and requesting a quote. The supplier quotes a price, and the customer decides whether to buy or not.
• At the start of the period in question, there is only one company supplying solar panels to the New York City market. This company, Alpha Solar, has one small factory.
• At point A, Beta Solar enters the market. Beta enters with a factory the same size as Alpha's.
• At point B, Gamma Solar enters the market. Gamma enters with a massive gigafactory.
• At point C, a patent on a low-cost technology for manufacturing solar panels expires.
• At point D, Bill de Blasio announces that NYC Transit is going green, and so the subway and bus systems will be powered entirely by solar panels. In order to implement this new clean energy plan, the Mayor's office immediately begins acquiring solar panels.
• Throughout this time, the solar panels sold by all firms are substantively the same.

(a) How would you describe the market structure prior to point A? Explain briefly.

(b) What do you think the marginal cost level is before the introduction of low-cost manufacturing technology at point C? Justify your answer.

(c) Explain the movements in price between points A and B.

(d) Why is the price drop at point B larger than that at point A?

(e) What do you think the marginal cost level is after the introduction of low-cost manufacturing technology at point C? Justify your answer.

(f) Why does the price jump at point D?