What this means is you to definitely in the part of equilibrium IC was convex to the supply. Let us comprehend the drawing given just below:
The indifference map depicts three indifference curves titled ICstep 1, ICdos and ICstep step three respectively. 2. The budget line touches IC2 at point E, which is the equilibrium point. The points that lie to the left of point E lie on the lower indifference curve, i.e., IC2 and indicate lower satisfaction. The points to the right of point E lie on the higher indifference curve, i.e., IC3 which indicates the points that are outside the consumer’s budget. The budget line can be tangential to the Indifference Curve at a unique point where MRXXY = PX/PY and MRS is diminishing.
Question step three. (a) Talk about one or two differences when considering productivity so you’re able to scale and you may yields to good changeable foundation. (b) With the help of a drawing, give an explanation for relationship anywhere between AR and MR off a firm lower than imperfect competition. (c) Discuss any four options that come with monopoly market. Answer: (a) A couple differences when considering productivity in order to level and productivity so you’re able to a varying foundation are as follows:
(b) The partnership ranging from AR and you can MR from a strong significantly less than incomplete battle is provided with less than: Each other Monopoly and you can Monopolistic Battle fall into the class from Incomplete Competition. Ergo, AR and you may MR contours slope downward much more systems are offered only by detatching the cost. Yet not, you will find one to major difference between AR and MR shape off dominance and you may monopolistic competition.
Under monopolistic battle, the new AR and you may MR contours be more flexible as compared to that from Dominance. So, when the cost of a product is actually enhanced in both the latest locations, next proportionate fall in request significantly less than dominance are less than proportionate fall-in demand less than monopolistic battle.
(c) The advantages out-of monopoly business are listed below: (i) Unmarried vendor and you will a large number of buyers: A dominance has just one provider or a team of manufacturers one to together with her offer a good. Hence, a monopoly have one business. But not, you can find a great deal of customers in the a monopoly sector. The brand new consumers don’t dictate the cost of this product.
(ii) Barriers so you’re able to admission: A monopoly business have highest traps or restrictions towards the entryway of your the newest business. For the reason that monopolies generally have personal liberties more particular information otherwise patent legal rights.
(iii) Unique services and products: The products supplied by an effective monopolist are novel, so there are not any personal substitutes of them products.
(iv) Large control of costs: Because the a monopoly business have an individual seller, owner possess a high amount of control over the price.
(v) Speed discrimination: A good monopolist can accept rates discrimination to earn large profits. Price discrimination means charging different price out of more users having an equivalent an effective. Such as for example, the price of an amusement park’s admission will likely be some other to have pupils, grownups and you will the elderly.
Question 4. (a) Explain the various degrees of price elasticity of demand at different points on a straight-line demand curve. (b) Show with the help of a diagram, how a perfectly competitive firm earns normal profit in short-run equilibrium. (c) Explain with the help of diagrams how equilibrium price changes when there is a simultaneous increase of both, demand and supply. Answer: (a) The elasticity of demand varies across a straight-line demand curve. To measure the elasticity of demand along a straight-line demand curve, the following formula is used. Ed = Lower segment of the demand curve/Upper segment of the demand curve. Let us see the diagram below.