Answer to Question #163976 in Microeconomics for Abid Khan

Question

what effect would each of the following have on the value of the firm?

(a) A new advertising campaign increases the sales of the firm substantially.

(b) A new competitor enters the market.

(c) The production department achieves technological breakthrough that reduces production costs.

(d) The firm is required to install pollution-control equipment.

(e) The workforce votes to unionize.

Answer 1

(a) In this case the total revenue and profit of the firm increases. As a result, the value of the firm also increases.

(b) In this case firm's sales and total revenue decreases. As a result, the value of the firm also decreases.

(c) In this case, the total costs decreases while the total revenue and profit of the firm increases. As a result, the value of the firm also increases.

(d) In this case, the total costs increases while the total revenue and profit of the firm decreases. As a result, the value of the firm also decreases.

(e) In this case, the total costs increases while the total revenue and profit of the firm decreases. As a result, the value of the firm also decreases.