Microeconomics: Concepts of Economies of Scale, Perfect and Monopolistic Competition, Monopoly Power and Equilibrium, and Market Analysis

Running head: MICROECONOMICS
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Table of Contents
Question 1........................................................................................................................................2
Question a....................................................................................................................................2
Question b....................................................................................................................................3
Question 2........................................................................................................................................3
Question a....................................................................................................................................3
Question b....................................................................................................................................4
Question 3........................................................................................................................................5
Question a....................................................................................................................................5
Question b....................................................................................................................................6
Question 4........................................................................................................................................7
Question a....................................................................................................................................7
Question b....................................................................................................................................7
Question c....................................................................................................................................8
References......................................................................................................................................10

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Question 1
Question a
Economies of scale refers to the cost advantage that a firm achieve with expansion of
production in longer term. Firms enjoy some cost advantages from a large scale of production.
The advantage in costs are attained in the form of a lower unit cost production. Economies of
scale is a long run concept. Economies of scale are realized from increasing sales of the firm.
This leads to an increased saving of the firms which in turn induces firm to purchase raw
materials in bulk and enjoy discount resulting in economies of scale. Diseconomies of scale is
said to arise when average cost increases with increase in output (Baumol and Blinder 2015).
This might happen when firms expand on a very large scale. Because of diseconomies of scale,
large firms often produce products and services at a high cost.
Figure 1: Economies and diseconomies of scale