Study Of Principles Of Economics

Added on -2020-02-19

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Running head: PRINCIPLES OF ECONOMICSPRINCIPLES OF ECONOMICSName of the StudentName of the UniversityAuthors Note
1PRINCIPLES OF ECONOMICSTable of ContentsIntroduction......................................................................................................................................3Question 1........................................................................................................................................3Question 2........................................................................................................................................6Question 3........................................................................................................................................8Question 4......................................................................................................................................10Conclusion.....................................................................................................................................13References......................................................................................................................................14
2PRINCIPLES OF ECONOMICSIntroductionThe aim of this study is to analyze on the firms behavior under the imperfect competitive marketstructures. In addition, market failure and imposition of government policy for controlling themarket is also illustrated in this paper. This study also discusses about the Australian circularflow of income and various determination of GDP growth rate. The circular flow of incomehelps in assessing the respective nation in terms of national income and product account (NIPA).Moreover, the GDP, withdrawals and injections are also estimated from the national accountsdata for the hypothetical economy.Question 1a) Firms under monopolistic and oligopolistic competition resort to differentiation of products asit facilitate them in earning higher profitability (Baumol and Blinder, 2014). Few entities in thisimperfect competitive market produce dissimilar products because they do not ability to imitatethe products of their competitors. Product differentiation makes the commodities more attractiveand aids the firms in attracting more customers. This aid the companies in gaining competitionadvantage as these products becomes superior in the view of customers. The restaurants in the monopolistic competitive market offer different food items to thecustomers that possess some unique element within it (Friedman, 2017). On the other hand, cellphones Company in the oligopolistic market such as Apple, Nokia differentiate their mobiles interms quality, innovative features and design. This strategy helps the firms in existing in thecompetitive environment and expands their business globally.
3PRINCIPLES OF ECONOMICSb)i) The framework of kinked demand curve assumes that the company’s will face commoditiesdual demand curve based on rivalries reactions to the price change or other variable. The demandcurve of the oligopolistic competitive market according to the hypothesis of kinked demandcurve has ‘kink’ given the certain price level. The kink occurs at that price level prevailing inthe market because the demand curve segment above that present price level is elastic in naturewhile the demand curve section below prevailing price is highly inelastic (Tinkler and Woods,2013). In this case, the kink occurs at price $185 corresponding to the quantity demanded at 50.At product price above $185 and amount less than 50, the demand curve becomes elastic.However if the firm increases the product price, its rivalries will not change the price and itsquantity will decline. At prices below $185, demand curve becomes inelastic. This is because ifone entity declines its product price, others will also tend to decline their commodities price.ii) Marginal revenue (MR) curve corresponding to this kinked demand curve consists of threesegments. If the quantities are less than 50, the MR curve is moderately flat. This section isobtained from that segment of demand curve that is elastic that corresponds to higher price andlower quantities (Taussig, 2013). On the contrary, if the product quantities are higher than 50, theMR curve is steep. This section is attained from the demand curve portion that is inelasticassociated with higher quantities and lower product prices. In addition, the MR curve becomesvertical at current price$185. Hence, this vertical section of the MR curve corresponds to kinkedpoint of demand curve.

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