Managerial Economics Assignment | Economics Assignment

Added on - 28 May 2020

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Running Head: ECONOMICS FOR MANAGERSEconomics for ManagersName of the StudentName of the UniversityAuthor note
ECONOMICS FOR MANAGERS1Table of ContentsAnswer a.....................................................................................................................................2Perfect Competition...............................................................................................................2Monopolistic competition......................................................................................................2Equilibrium in perfectly competitive market.........................................................................3Equilibrium in monopolistically competitive market............................................................6Productive and allocative efficiency......................................................................................8References................................................................................................................................11
ECONOMICS FOR MANAGERS2Answer aMarket is a place of exchange between buyers and sellers. Among various form ofmarket the two most common form of market are perfectly competitive market andmonopolistically competitive market (Fine, 2016). There are some common characteristicsthat these two markets have.Perfect CompetitionPerfect competition is a form of market where there are several buyers and sellershaving intense competition in the marketplace. The major characteristics of perfectlycompetitive market are the followingParticipants (buyers and sellers) in the market have access to complete information.This minimizes risk in the market and prevents any form of market power.An identical or homogenous product is sold in the market.There is no barriers to entry in the market. Firms can also exit the market any time.As there are several sellers present in the market each captures only a small share inthe market. It is not possible either for buyers or for sellers to affect price and outputhere (Frank, 2014).The market participants take rational decision. Hence, government does not need tointervene.Monopolistic competitionMonopolistic competition is a combination of monopoly and perfect competition.Like perfectly competitive market, various sellers compete in the market. Each sellers comewith a differentiated product (Dean, 2014). Owner of a particular brand enjoy monopolypower over its own product. Some important features of monopolistic competition are givenbelow
ECONOMICS FOR MANAGERS3Like competitive market, various buyers and sellers participate in the monopolisticcompetition.Presence of various competitors in the market eliminates almost all the market power.To enjoy some market power sellers differentiate their product as much as possible.Product differentiation gives firm some market power to take independent decision inthe market (Bernanke, Antonovics & Frank, 2015).New firms in the market freely enter or existing firms can leave the industry.Equilibrium in perfectly competitive marketEquilibrium in short runShort run is the time span when firms though can change variable factor but unable toalter fixed factor that require huge capital investment. In the perfectly competitive market,seller sell their product at the market-determined price. As price is given in the market and isnot a function of produced output demand curve is parallel to horizontal or quantity axis. Forthe reason marginal revenue equals to price. Under perfect competition, the marginal costcurve is U shaped usual (Cowen & Tabarrok, 2015). Two-profit maximization condition inthe short run requires,a) Marginal revenue equal marginal cost. As price equals both average revenue and marginalrevenue, the first order condition reduced to Price = marginal cost.b) Marginal cost curve cuts the marginal revenue curve from below.Perfectly competitive firm in the short run can make more than normal profit bycharging an above is average cost. Similarly, when firm charges price less than the averagecost then total revenue fail to recover total cost leading to an economic loss. Only normalprofit is achieved when total revenue just equals total cost. Various short run scenarios aredepicted in the following figures
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