An assumption of the BECOMP model is:

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Question restatement: An assumption of the BECOMP model is: (options) a) Heterogeneous firms, b) Constant marginal costs, c) Constant average costs, d) Perfect competition.

Option a: Heterogeneous firms. In many standard BECOMP frameworks, firms are treated as identical or homogenous to simplify analysis of market structure and cost pass-through. Assuming heterogeneous firms would complicate the model and is not a core assumption of the typical BECOMP setup. Therefore this statement is not aligned with the standard BECOMP assumptions.

Option b: Constant marginal costs. This is a common simplifying assumption in BECOMP models to keep supply decisions linear and tractable, so that marginal cost does not vary with output. It helps in deriving neat relationships between costs, prices, and quantities and is a standard assumption in many BECOMP-like analyses.

Option c: Constant average costs. While some models may assume certain cost constancies, constant average costs across all output levels is less typical in BECOMP frameworks than constant marginal costs. Average cost may still vary with output due to fixed costs, so declaring it constant across all levels would be more restrictive and not a shared default assumption in many BECOMP treatments.

Option d: Perfect competition. The BECOMP model often sits within a context where firms are not perfectly competitive—models like BECOMP incorporate elements that deviate from perfect competition to examine strategic behavior, market power, or product differentiation. Hence, assuming perfect competition would be inconsistent with the typical purpose of BECOMP models.

Option-by-option takeaway: The prompt focuses on an assumption that streamlines treatment of firm costs in the BECOMP framework. Among the choices, constant marginal costs stands out as the standard simplifying assumption that aligns with the model’s analytical needs. The other options introduce elements (firm heterogeneity, constant average costs, or perfect competition) that either complicate or contradict the conventional BECOMP setup, making them less consistent with its typical assumptions.

Additional context: If you recall, many macro/micro models use constant marginal costs to derive linear supply curves and straightforward relationship between price and output, whereas heterogeneity and non-constant averages typically require more complex modeling choices. Perfect competition would imply zero profits and price-taking behavior that may not capture the BECOMP’s intended features. Overall, the selection of constant marginal costs reflects a standard simplifying assumption used to facilitate tractable analysis in BECOMP-type analyses.

An assumption of the BECOMP model is:

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An assumption of the BECOMP model is:

View Explanation

Log in for full answers

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