StudentShare solutions
Triangle menu

Microeconomics: output - Essay Example

Not dowloaded yet

Extract of sample
Microeconomics: output

(Rubinfield and Pindyck, 2005)
According to Sloman, a perfectly competitive firm is that market structure where all the firms in the industry are producing homogenous goods and selling it a same price. All of these sellers and buyers have perfect information so no firm can sell at a higher price and no consumer can demand to purchase at a lower price because there is competition in the market. On the other hand monopoly is a firm which is a sole supplier or producer of a product service. Since it is the sole supplier it has some market power and therefore can choose to sell the products at a price he wants. However, his price decisions do affect the quantity demanded therefore he has to be wise in make a decision about at what price to sell his products.(2000)
If we compare the two firm graphically, we will first see that for a perfectly competitive firm AR or Price curve = MR curve. P = MR = AR is a horizontal line and this represents the constant nature of these curves. This means that any increase in quantity will bring about the same change in marginal revenue curve. This does not happen in a monopoly as in order to increase his revenue in order to increase his revenue, a monopolist has to lower his price as it will increase quantity demand. Due to this AR is always higher than MR (marginal revenue) curve. As a result of this monopolists always determine his quantity demand where MR = MC meet, but he takes a pricing decision on a AR (Average revenue curve) which is higher than MR and yields higher price to the monopolist. But this is not the case in a perfect competitive firm which chooses quantity and price at a place where MR = MC meets and the price is set by the constant or horizontal AR = MR = P curve.
As already discussed that a perfectly competitive firm produces a higher output and charges lower price, it is said to be more efficient than a monopolist. Perfectly completive firms in theory enjoy both allocative and productive efficiency, whereas monopolist only achieves allocative efficiency.
In the real world also we can apply this model, but the results provided by these models will not be similar as provided by these theoretical models. For example, De Beers is monopoly who owns large diamond reserves and despite of low diamond shoveling costs they can sell it for millions of dollar. This is how a monopolist exploits consumers. Similarly, we all know that Petrol Pump exist in a competitive industry and despite of high costs associated with oil refining , they usually have to sell petrol at a margin of just few cents. In this way, the theoretical model look right, but consider the example of how Wal-Mart existence in the form of a monopoly has provided consumers with lower priced goods as compared to perfectly competitive industry of local general stores. This proves the theoretical model wrong.
The other types of market structures that exist are oligopolies, duopolies, monopolistic competitive firms and cartels. These models are much realistic to the model discussed above.

3) The concept of elasticity is the measure of responsiveness of change in quantity demanded, following a change in price. A demand or supply is said to be elastic if the ...Show more

Summary

Suppose that an economy produces the combination of two goods i.e. manufactured goods and financial services. The best or maximum out that this economy can produce is the output indicated on the boundary of Production possibility frontier, However, recession or credit crunch now hits the country and resources were made unemployed…
Author : dickensnewell
Microeconomics: output essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Microeconomics: output"
with a personal 20% discount.
Grab the best paper

Related Essays

Microeconomics
In 2008, two smart lawyers quietly bought up all the firms and began operations as a monopoly called “Wonks.” To operate efficiently, Wonks hired a management consulting firm, which estimated a different long-run competitive equilibrium. The new company is now a “monopoly” which is only the sole provider of potato chip in the entire country.
6 pages (1500 words) Essay
Microeconomics
2. Introduction General characteristics of monopoly and various types of monopoly and examples of monopoly are mentioned briefly in this paragraph 3. Types of monopoly Natural monopoly, geographic monopoly, technological monopoly, and government monopoly are explained in this section.
6 pages (1500 words) Essay
Microeconomics
The main forces of the market are the forces of demand and supply. The interaction between these two forces develops the price mechanism in a free market economy. The price mechanism refers to the method interaction occurs between the decision of buyers (consumers that make consumption choices) and sellers (businesses that take decision about allocation of scarce resources among different productive uses).
8 pages (2000 words) Essay
Microeconomics
It then allocates the resources available in the society to many potential uses. It also seeks to understand how national economic policies affect these households and firms. According to Tietenberg (2006), microeconomic issues regarding the environment come in
4 pages (1000 words) Essay
Microeconomics
In this case, after the long-standing tradition of stakeholders, there are chances of assuming the rational for government intervention in the
8 pages (2000 words) Essay
Microeconomics
In a special manner, microeconomics dwells on behaviors related to demand and supply and determining prices and output in certain markets. On a broader perspective, microeconomics addresses smaller issues, putting much
5 pages (1250 words) Essay
Microeconomics
Someway the quantity obtainable, Q1, need to be rationed amongst the buyers. This price P1 will make buyers to demand precisely the amount that is obtainable, Q1. Those who are willing to part
7 pages (1750 words) Essay
MicroEconomics
v) Price discrimination- a monopolist is able to change prices and the quantities of products. In very elastic market, he/she charges lower prices hence selling higher quantities. And in less elastic markets he/she charge higher prices thus selling
2 pages (500 words) Essay
Microeconomics
The third approach is the last dollar rule, whereby the firm should produce at a point where the last dollar it spends on an input
3 pages (750 words) Essay
Microeconomics
Market failure may occur when there is a negative externality that imposes an external cost on the society. The efficient level of coal gas mining for the society is lower than the market quantity. In effect, the
6 pages (1500 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation