Economics Assignment: Perfect Competition, Monopoly, Oligopoly, and Types of Goods
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This economics assignment covers topics such as perfect competition, monopoly, oligopoly, and types of goods. It includes answers to questions related to market structures, natural monopolies, inefficiencies, and more.
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RUNNNG HEAD: ECONOMICS ASSIGNMENT Economics assignment Name of the student Name of the university Author note
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2ECONOMICS ASSIGNMENT Answer 1 (a) In case of perfect market conditions firms are known to be the price takers and not price makers since other firms can very easily enter the market and will be producing products which will be quite similar from the other product. In case of perfect competition, firms are known to sell homogenous products which makes it easy for the firms to enter the market. These factors make it quite difficult for the firms to set their prices above the market price which will be making them the price maker rather the price taker. (b)
3ECONOMICS ASSIGNMENT
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4ECONOMICS ASSIGNMENT In case of short run, the firms will not be able to change the factors of production and during that time the size of the plant will be remaining quite small and firms can neither enter or exit the industry. In case of perfect competition, given identical sold and price is given in the market, the individual firm will be facing perfectly elastic demand curve. In this case the demand curve will be presented by a horizontal straight line. There fore either a supernormal profit, normal economic profit or economic loss can take place in case of short run for the perfectly competitive industry. Here in this case the marginal revenue will be equal to the marginal cost. Therefore, in case of competitive market price will be marginal revenue equal marginal cost. The equilibrium condition for the competitive firm will take place when price is equal marginal cost. At the equilibrium point slope of marginal revenue should be less than the slope of the marginal cost. Competitive firms in the long run can be attained only through the economic profit. Due to the economic profit the loss in the adjustments in the competitive industry occurs in terms of exit or entry of the firms.The adjustment will be occurring when the industry will be earning only normal profit or zero economic profit. The long run equilibrium condition for the competitive firms will be taking place in the long run where Price will be equal to long
5ECONOMICS ASSIGNMENT run average cost which will be also equal to long run marginal cost and short run average cost and short run marginal cost. Answer 2 (a) A natural monopoly will be a form of monopoly which will be existing as a result of high costs of conducting the business for the specific industry. Natural monopolies will be taking place when the industries will be requiring raw materials, technology or simple factors for operating. Economies of scale can be stated as one of the reasons for the existence of the monopolies. Another factor which lead to the formation of monopolies is that they have sole access to some of the resources or technology and they can also use the non-market means for eliminating the competition. Some of the examples of natural monopolies include railroads, pipelines, water supply systems and electric power transmission systems. These kinds of infrastructures are usually
6ECONOMICS ASSIGNMENT characterized by huge costs and is also often inefficient to have more than single firm because of the high cost. (b) Monopolies can be termed as one of the most inefficient market structures. The reason behind this is that as it is the sole seller in the market, they hardly have any competitors in the market. The inefficiencies in the market structure will be arising of the large firms whose infrastructures are quite expensive in nature. Inefficiencies also take place in case of monopoly market will be arising when less of the goods or services are to be provided and at higher economic profits than the market clearing level. The concept of technical efficiency will be taking place when the firm will be failing to be technically efficient because of the absence of the competitive pressures. Monopoly will be employing inefficient working practices since it will be having no incentive in order to cut costs. Answer 3 (a)The oligopoly has the market structure which states that it only has few firms although it is different from the monopolistic competition. Oligopolies are termed to be independent in nature since their success of the price strategy mainly relies on the
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7ECONOMICS ASSIGNMENT reaction of the other oligopoly firms in the market. oligopolies generally have large number of few firms where each of the actions in the market will be affecting the market conditions and for this reason the competing firms needs to be aware of the actions of the firms and will also respond immediately. As the action taken by one firm will be affecting the other firm, this nature is termed as interdependence of the firm. (b) The assumption that lead to the price change underlining the kinked demand curve are rivals will be matching the price cuts, the rivals will also be ignoring the increase in price the kinked demand curve of the model states that there will be periods of relative price stability under the oligopoly where business will be focusing on the non-price competition as a means of reinforcing the market positions along with rise in the supernormal profits.One of the predictions is that changes in the variable cost will not lead to rise or fall in the profit maximizing price. (c)
8ECONOMICS ASSIGNMENT In the long run with the entry of the new firms in the industry the product prices are known to go down with the increase in supply of output and the cost will also be going up because of the intensive competition for factors of the production.The firms will continue entering the industry until the price is equal to average cost so that all firms are earning only normal profits. Also, in case of long run equilibrium the firms will be enjoying market efficiencies which will be leading to scarce resources not to be wasted.In case of perfect
9ECONOMICS ASSIGNMENT competition long run, the loss making firms will be exiting the industry and then new firm will be entering the market. (d) There are a number of differences in case of monopolist and perfect competition markets. In case of the nature of the firms, under the perfect competition, the industry will be comprising of a large number of firms and each of the firm in the industry will be having little share in the total output. On the other hand under the monopolistic competition the number of firms are quite limited in number. Also in case of perfect competition, price will be equalto themarginalcostaswellasthemarginalrevenueswhereasin case of monopolistic competition the marginal cost and marginal revenues may be equal but they do not equalize the price.Under monopolistic competition firms get super normal profits only in the short period. However in case of the existence of super-normal profits disappears. It is so because in the long period price becomes equal to average cost of production. In case of perfect competition, the situation is slightly different. Products will be mostly homogeneous in nature in case of perfect competition. On the other hand in case of monopolistic market the products are different innature and the cross elasticity of demand in that case is also quite small. Under the monopoly market, the average revenue is known to be more than the marginal revenue since firms need to lower the price in order to increase sales. However in case of perfect competition, both the marginal revenue and the average revenue will be equal. In the perfect competition market output is more than the monopolistic competition market output. Answer 4 (a)
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10ECONOMICS ASSIGNMENT There are basically four types of goods that have been classified by the economists. Those are private goods, public goods. Commo resources and the club goods. outputMSBMCMECMSC 1100302050 2100302252 3100352560 4100452075 51006040100 61007855133 710010077177 8100130110240 (i)The answer will be 7 units since marginal revenue is equal to the marginal cost at that output. (ii)5 units. because marginal social benefit will be equal to marginal social cost at that point of output (iii)The reason behind this is thatthe environment becomes ever less able to cope with additional amounts of pollution.
11ECONOMICS ASSIGNMENT Reference list Bauer, M. J. R. (2018). Principles of microeconomics. Baumol, W. J., & Blinder, A. S. (2015).Microeconomics: Principles and policy. Nelson Education. Cabral, L. M. (2017).Introduction to industrial organization. MIT press. Cowell, F. (2018).Microeconomics: principles and analysis. Oxford University Press. Cowen, T., & Tabarrok, A. (2015).Modern principles of microeconomics. Macmillan International Higher Education. Iossa, E., & Martimort, D. (2015). The simple microeconomics of public‐private partnerships. Journal of Public Economic Theory,17(1), 4-48. Jahantigh, F., Tash, S., Nabi, M., & Pahlavani, M. (2015). Evaluation of Social Cost of Monopoly in Iranian Industries: Leibenstein Approach.Iranian Journal of Economic Studies,4(1), 1-26. Khalil, F., Lawarree, J., & Scott, T. J. (2018). Applied Microeconomics. Taylor, J. E. (2019).Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act. University of Chicago Press.