Economic of Industry Essay Example | Topics and Well Written Essays - 2000 words

Economic of Industry - strive ExampleThis attracts new players to the field as there ar no entry or decease breastworks. When the number of players in the industry subjoins, the industry output increases. This reduces the profit margins of the firms. Will the entry of new players return at this level No, the entry will not stop until the firms are able to make profits. hardly as the number of firms increases, the industry is squeezed of profits and the firms start making losses. When the firms start making losses, financially anemic and the operationally inefficient leave the industry and that is also because there is no barrier to exit from the industry.The representative of the competition in the Video rental market in United States shows how the lack of entry or exit barriers help shape the industry. In the early 1980s when the Video cassette recorder(VCR) and video cassette player (VCD) was operational to the consumers it became a must in many of the households. Statisti cs show that in 1980 less than 1% of American households owned a VCR. But by 1990 over 70% of families owned one. This led to a huge increase in demand for video cassettes. So movie tapes rental business was a very popular ones. The initial players in the industry had huge profits upto five dollars a night and they were able to convalesce the cost of the tape after a few rentals. But there was no entry barrier in the industry. Looking at the huge demand and the enormous profit levels, many people started the aforementioned(prenominal) business. This lead to increase in competition. So between 1982 and 1987 the number of movie tape rental outlets change magnitude by 400%. Gas stations and grocery stores also rented tapes. This led to a downward embrace on the price, so by 1990 the tape rental rates had travel down to $ 1.50 per night. The profits had fallen down and this caused many firms to exit from the industry. Entry had ceased. The industry had attained its equilibrium in the long run. With the approaching of more modern technologies the movie rental industry is going to shrink even more. Due the concomitant that the product is identical and the industry has no entry and exit barriers, the firms in this kind of industry are price takers. They have very little control over the price, the profits for the firms depends on