Another condition to achieve individual balance is the fact that MRS should be shrinking at an equilibrium part
by LottescoThis simply means that at part out of balance IC are convex to the resource. Let us understand the diagram listed below:
The indifference map depicts three indifference curves titled IC1, ICdos and IC3 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.
Matter step three. (a) Speak about a couple differences between output in order to size and you will returns so you can an excellent changeable basis. (b) With the help of a diagram, explain the relationships anywhere between AR and you will MR off a firm below incomplete battle. (c) Speak about people four features of monopoly business. Answer: (a) One or two differences between yields to size and you can yields to a changeable foundation are listed below:
(b) The relationship anywhere between AR and you may MR from a company below imperfect battle is provided with less than: Both Monopoly and you will Monopolistic Competition fall into the class out of Imperfect Competition. Hence, AR and you may MR shape mountain down as more gadgets should be offered merely by reducing the price. However, there clearly was one biggest difference in AR and MR curves out-of monopoly and you can monopolistic competition.
Lower than monopolistic battle, brand new AR and you can MR shape much more elastic than the that from Dominance. Thus, in the event the cost of a product try improved in both brand new segments, following proportionate belong demand lower than monopoly is less than proportionate belong consult lower than monopolistic competition.
(c) The advantages from monopoly industry are as follows: (i) Solitary seller and 1000s of customers: A dominance features just one supplier otherwise a small grouping of suppliers you to together promote a. Ergo, a dominance keeps just one enterprise. Yet not, discover a large number of buyers when you look at the a dominance markets. The newest people dont dictate the cost of the item.
(ii) Barriers so you’re able to entry: A dominance market features high barriers otherwise restrictions into the entryway of the the firm. Simply because monopolies tend to have personal rights over particular information or patent liberties.
(iii) Novel goods: The goods supplied by a monopolist is novel, there are no personal substitutes ones products.
It happens because of the presence off intimate alternatives not as much swingtowns as monopolistic battle while the absence of romantic substitutes under monopoly
(iv) High control of pricing: Because the a monopoly market enjoys one vendor, the vendor keeps a top amount of control of the price.
Given the finances restriction of your own individual, the best apathy contour one a customer can also be visited is IC
(v) Speed discrimination: An effective monopolist can also be take on rate discrimination to make high profits. Rate discrimination identifies asking additional price regarding additional consumers having a similar good. Instance, the price of an amusement park’s admission might be various other having people, people and you will seniors.
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.
