What this means is you to in the point out-of equilibrium IC is convex on the source. Let us see the diagram given below:
The indifference map depicts three indifference curves titled ICstep one, ICdos and IC3 respectively. 2. The budget line touches IC2 at point E, which is the equilibrium point. The points that lie to the left of point E lie on the lower indifference curve, i.e., IC2 and indicate lower satisfaction. The points to the right of point E lie on the higher indifference curve, i.e., IC3 which indicates the points that are outside the consumer’s budget. The budget line can be tangential to the Indifference Curve at a unique point where MRXXY = PX/PY and MRS is diminishing.
Question 3. (a) Talk about a few differences between returns so you’re able to measure and you may yields in order to a great varying basis. (b) By using a drawing, explain the relationships ranging from AR and you may MR away from a company below imperfect race. (c) Speak about one four popular features of monopoly field. Answer: (a) Several differences between production to help you scale and you will output in order to a varying foundation are listed below:
(b) The relationship anywhere between AR and you may MR regarding a company less than imperfect battle is provided with lower than: One another Dominance and you can Monopolistic Competition fall under the category away from Imperfect Battle. Hence, AR and MR contours hill downwards much more devices are going to be offered merely by detatching the purchase price. Although not, there is certainly one to big difference in AR and you can MR shape out-of monopoly and monopolistic competition.
Not as much as monopolistic competition, the fresh AR and MR shape be much more flexible as compared to those of Monopoly. Thus, in the event the price of a product is actually enhanced in both the fresh new segments, then proportionate belong consult lower than monopoly is actually less than proportionate fall in request lower than monopolistic battle.
(c) The characteristics off monopoly market are listed below: (i) Unmarried supplier and you can tens of thousands of people: A dominance have just one supplier or a team of sellers one to together promote an excellent. Thus, a dominance have just one enterprise. Yet not, there are many buyers into the a dominance sector. The brand new people don’t dictate the price of the product.
(ii) Barriers so you can admission: A dominance markets has actually high barriers or limits into the entry of your own the newest organization. For the reason that monopolies tend to have private legal rights more than specific resources otherwise patent liberties.
(iii) Unique services and products: Items given by an effective monopolist is novel, so there are not any close alternatives of these goods.
It occurs by presence regarding romantic alternatives less than monopolistic battle in addition to absence of close replacements below monopoly
(iv) High control over prices: Because the a dominance market features a single vendor, the vendor enjoys a top amount of command over the cost.
Given the finances limitation of one’s consumer, the greatest apathy curve one a consumer is also arrive at are IC
(v) Speed discrimination: Good monopolist can also be accept rates discrimination to make high profits. Speed discrimination describes charging more speed away from various other consumers for a comparable good. Including, the cost of an entertainment park’s pass will be different to have children, people and you will seniors.
Question 4. (a) Explain the various degrees of price elasticity of demand at different points on a straight-line demand curve. (b) Show with the help of a diagram, how a perfectly competitive firm earns normal profit in short-run equilibrium. (c) Explain with the help of diagrams how equilibrium price changes when there is a simultaneous increase of both, demand and supply. Answer: (a) The elasticity of demand varies across a straight-line demand curve. To measure the elasticity of demand along a straight-line demand curve, the following formula is used. Ed = Lower segment of the demand curve/Upper segment of the demand curve. Let us see the diagram below.