Microeconomics as a Branch of Economics - Essay Example

The graph shows the relationship between the three situations above, Where MR=Marginal Revenue, AR=Average Revenue, and MC=Marginal Cost. The output is represented by Q while price by P. A monopoly may want to reduce output from Q1=17.5units to Q3=25units so that he can sell at a higher price P3=$35 (Asian Development Bank, 2002). However, economies of scale may occur leading to a shift in marginal cost from MC1 to MC2 (Pirayoff, 2004).This shift may lead to an increase in monopolist output from Q1=17.

5 Units to Q2=40 units. This may lead to a decrease in price from a competitive price to a lower price P2=$30 despite the availability of a monopoly price =$35 (Brakman and Heijdra, 2004). The reasons why there is no supply curve for a monopoly is because, in a monopoly market structure, the market is under the control of a single supplier, hence no need for supply curve (Dwivedi, 2006). (b)A gardener states that for only $1 in seeds, she has been able to grow over $20 produce-enormous profits.

Do you agree or disagree with her/ explain? Yes, I agree with her because if she was operating in a monopolistic competition, it is possible to earn enormous profits in the short run as shown in the diagram. The graph shows the relationship between the three situations above, Where MR=Marginal Revenue, AR=Average Revenue, and MC=Marginal Cost. The output is represented by Q while price by P.  A monopoly may want to reduce output from Q1=17.5units to Q3=25units so that he can sell at a higher price P3=$35 (Asian Development Bank, 2002).

However, economies of scale may occur leading to a shift in marginal cost from MC1 to MC2 (Pirayoff, 2004).This shift may lead to an increase in monopolist output from Q1=17.5 Units to Q2=40 units. This may lead to a decrease in price from a competitive price to a lower price P2=$30 despite the availability of a monopoly price =$35 (Brakman and Heijdra, 2004).The reasons why there is no supply curve for a monopoly is because, in a monopoly market structure, the market is under the control of a single supplier, hence no need for supply curve (Dwivedi, 2006).