Illustrate what is the equilibrium number of video arcades

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Reference no: EM1365320

International and Balance of Payment Issues in the Macro Economy; Combining Micro and Macro Analysis for Managerial Decision Making - Extra Credit

Consider a city where zoning laws limit the number of video arcades to one. The city's only video arcade has a price of 50 cents per game and a long-run average cost of 34 cents per game. Suppose that the city eliminates its restrictions on video arcades, allowing additional firms to enter the market. According to the expert in the arcade market, "Each additional video arcade will decrease the price of the game by 2 cents and increase the average cost of providing games by 3 cents." What is the equilibrium number of video arcades? Show how you arrived at your answer.

Reference no: EM1365320

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