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BUS5POE Principles of Economics Assignment

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principles of economics (bus5poe)

   

Added on  2019-10-30

BUS5POE Principles of Economics Assignment

   

principles of economics (bus5poe)

   Added on 2019-10-30

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PART AQ1A monopoly is diametrically opposite to perfect competition. Monopoly has 1 firm, while perfect competition has many firmsMonopoly faces a down sloping demand curve, while a firm in perfect competition has a horizontal demand curve. The monopolist is a price maker, while a firm in a price taker in perfect competition.Monopoly has entry barriers while perfect competition has free entry and exit of firms. A monopolistic competition market structure is closer to perfect competition, than to monopoly. In monopolistic competition there are less firms as compared to a perfect competition.Each firm in monopolistic competition faces an elastic demand curve that slopes down- eachfirm has limited control over price.All goods are homogeneous in perfect competition, while they are ‘differentiated’ in monopolistic competition. This differentiation leads to the birth of a product group, which consists of goods that are close substitutes of each other.Perfect competition and monopolistic competition are similar as they do not allow abnormalprofits in the long run, and allow free entry and exit of firms. . Q2Such firms face a downward sloping curve, which means that price and quantity are inversely related. If they increase quantity then they face a lower price, which reduces profits. Ina way they face a tradeoff between lowering average cost( by increasing quantity) and lower price. The balance between price and average cost is reached by equating marginal revenue with marginal cost. Q3FALSE, because a firm in monopolistic competitive structure cannot make positive economic profits in the long run. This is because there is free entry and exit. If profits exist new firms will enter and ensure prices are lowered till all positive profits are wiped out. Equilibrium is reached when only normal profits are made. Q4Option A is best. This is because AVC < P < ATC which implies losses in the short run. The firm continues as variable costs are covered by revenues. In the long run such losses will lead to closure as the monopolist cant continue with losses in long run.
BUS5POE Principles of Economics Assignment_1

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