The Computer Age Doesn't Eliminate Paper, It Just Shrinks the Size of Paper Companies

1. Give some examples of long-run cost reduction offered in the article summary. Draw a graph of long-run average costs to illustrate what is happening in the article.

Sale of forests, elimination of whole divisions of the paper company. Firms are moving backward along the long-run average cost curve.

2. Draw a graph of supply and demand to illustrate what is happening in the article. Be sure to include all of the curve shifts outlined in the summary. What is the ultimate change on price?

Demand for paper has fallen. Mill closures reduce supply of paper. Cheap imports increase supply of paper. Increased demand for newspapers in developing countries increase demand for paper. Ultimate change to price is indeterminate, without knowing more about the impacts from demand/supply changes.

3. Is this an example of a paper company's attempt to achieve economies of scale? Why or why not?

No. Because the companies are reducing scale, this could be an attempt to eliminate diseconomies of scale; i.e., trying to achieve minimum efficient scale.

Multiple Choice/True False Questions

1. The article suggests that price hasn't fallen in the wake of the decreased demand. This could be because:

  1. Paper products don't follow the law of demand.
  2. Supply has been falling faster than demand has been falling.
  3. The increased demand in other countries has buoyed demand in the US.
  4. None of the above.
ANS .b

2. True/False. The sale of portions of paper companies' business is an example of long-run cost reduction.

ANS . True

3. Firms that sell of portions of their businesses in the long run do it so that
  1. Marginal costs fall in the long run.
  2. Average costs fall in the long run.
  3. Sunk costs are eliminated.
  4. Firms experience economies of scale.
ANS . b

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