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managerial economics
Managerial Economics 8th Edition D N DWIVEDI - Solutions
Explain and illustrate graphically Sweezy’s kinked demand curve theory of rigidity in oligopoly, Are prices in oligopoly really sticky? What are the weaknesses of this model?
Kinked demand curve model establishes that price once determined in oligopoly does not change even if there is change in cost of production. Using kinked demand curve model show that change in cost of production does not lead to change in price in oligopoly.
What are the assumptions behind the existence of kinked demand curve?How does it reflect behaviour of the oligopoly firms? Why do rival firms react to a price cut but not to price rise in oligopoly markets?
Explain and illustrate Chamberlin’s model of oligopoly (small group).How is Chamberlin’s model different from Cournot’s model of oligopoly? Which of the two models offers a more realistic explanation of oligopoly markets?
Suppose a demand function is given as Q = 100 – 2 P. Using Cournot’s model, find the equilibrium output and price. Is equilibrium of the firm stable in Cournot’s model?
Explain Cournot’s model of duopoly, Illustrate graphically whether price is determinate and stable in Cournot’s model of duopoly Show that his model of duopoly can be applied to oligopoly?
What are the assumptions of theory of oligopoly? How are these assumptions different from those of theory of monopolistic competition?
What are the characteristics of oligopoly? How is an oligopoly market different from monopolistically competitive market in respect of price and output determination? Is price determinate in an oligopoly market?
Write a note on the critical evaluation of Chamberlin’s theory of monopolistic competition? Why is his theory not in use even though it is analytical sound?
What are the drawbacks of Chamberlin’s theory of monopolistic competition? What is the merit of his theory in spite of its drawbacks?
Group equilibrium shows that firms incurring selling costs make only normal profit in the long run. It implies that selling cost is a waste. Do you agree with this statement?Give reason for your answer.
What does Chamberlin mean by ‘group equilibrium’? How does selling cost affect the group equilibrium? Illustrate firm’s equilibrium with selling costs.
What is the usual form of non-price competition in monopolistic competition? Explain and illustrate the firm’s long-run equilibrium under non-price competition. Why do firms involved in non-price competition make only normal profit in the long run?
What are the wastages of monopolistic competition? Is the ‘traditional’concept of excess capacity an overstatement of one of the wastages of monopolistic competition? Give reasons in support of your answer.
What is meant by ‘ideal output’ and ‘excess capacity’? Illustrate Chamberlin’s measure of excess capacity. How does Harrod’s measure of excess capacity differ from Chamberlin’s measure?
How are the long-run conditions different from short-run conditions for a firm in monopolistic competition? Illustrate and explain the long-run equilibrium of firm in monopolistic competition?How is firm’s long-run equilibrium different from its short-run equilibrium?
Suppose market demand curve is given Q = 500 – 0.5P. Work out the proportional demand curve for a firm assuming there are 50 firms in the industry. Is the elasticity of the proportional demand curve at a given price is the same as that of the market demand curve or different?
How does a monopolistically competitive firm adjust its price and output to arrive at its equilibrium?Explain and illustrate how a firm in monopolistic competition reaches its equilibrium in the short run? Does a firm in equilibrium in monopolistic competition always make a supernormal profit?
What is Chamberlin’s concept of‘product group’? How is the concept of‘product group’ different from the traditional meaning of industry?
The purpose of selling cost is to increase the demand for the product and to make demand curve more elastic. But there is limit to it. How can a firm find the optimum level of selling cost?Explain by using appropriate diagrams.
According to Chamberlin, average selling cost (ASC) curve is U-shaped.What factors determine the shape of the ASC? Illustrate graphically how selling costs affect the overall cost structure of the firm.
What is meant by selling costs? How is selling cost different from advertisement cost? Why do firms in monopolistic competition incur selling costs?
In monopolistic competition, firms think that the demand curve for their individual product is different from that of the industry as whole. Illustrate graphically firm’s perception of their individual demand curve.
What is meant by product differentiation? What is the purpose of product differentiation? How does it affect firm’s demand curve?
There is an element of monopoly in monopolistic competition. What factors give monopoly; power to a firm in monopolistic competition?
What are the characteristics of monopolistic competition? Compare the characteristics of monopolistic competition with those of perfect competition?
Theories of monopolistic competition and monopoly do not represent the real business world;whereas theory of monopolistic competition offers an explanation to price and output determination in a real business world. Explain and justify the statement.
Monopolistic competition is the middle ground between perfect competition and monopoly;Explain the statement.
What is monopolistic competition? How does it differ from perfect competition and monopoly?
Suppose a monopoly firm sells it product in two different markets with their respective demand functions given as follows.Q 1 = 500 – P 1, Q 2 = 300 – P 2 Firm’s total cost function is given as TC = 50000 + 100 Q Find:(a) profit maximizing output,(b) profit maximizing price, (c) prices for
Suppose market demand function for monopoly firm is given by = 100 –5 P. Find the following.(a) Price function or reverse demand function for the monopolist;(b) AR-function of the monopolist;370 Part IV: MARKET STRUCTURE, PRICING THEORY AND PRACTICES(c) MR-function of the monopolist;(d) TR-
Which of the following statements are correct?(a) A monopolist can charge any price to maximize profits.(b) A monopoly firm can fix its price anywhere along the demand curve,(c) If monopoly’s MC = 0, it fixes its price where e = 0.(d) The slope of monopoly’s MR curve is twice that of AR
Write short notes on the following criteria of monopoly power.(a) Concentration ratio,(b) Excess profitability criterion, and(c) Cross-elasticity criterion.
What is meant by monopoly power? What are the methods of measuring the degree of monopoly power?
Calculate the ratio of prices charged by a discriminating monopolist in two markets, A and B, having price-elasticities of demand as – 0.5 and – 1.5, respectively.
Suppose a simple monopolist is in equilibrium. At the point of equilibrium, the coefficient of price elasticity is – 2 and marginal cost is `4.0. Calculate monopoly’s equilibrium price. How will this price be affected by an increase in the fixed cost of the monopolist?
(a) Explain how profit maximization by a monopoly firm reduces public welfare vis-à-vis a competitive firm,(b) Why is price discrimination under monopoly considered to be economically desirable?
Show graphically the determination of profit maximizing equilibrium of discriminating monopolist.Is price discrimination socially desirable?
What are the necessary conditions of price discrimination under monopoly? Show how a profitmaximizing discriminating monopolist allocates his output between two markets and charge different prices?
Suppose a monopolist faces two markets, A and B, with their respective demand functions given as QA = 500 – 0.5 P and QB = 980 – 2 P. Find the equilibrium price and output sales for each market.
What is a discriminating monopoly? What are the conditions which force the monopolist in practicing price discrimination? State the conditions under which price discrimination is possible and profitable as well.
What is price discrimination? Explain and distinguish between the first, second and the third degrees of price discrimination. Which one makes a general case for price discrimination and why?
Show the difference between the long-run equilibrium of a competitive firm and the long-run equilibrium of a monopoly firm with regard to the following: ( i) price, ( ii)profits and ( iii) use of capacity.
Compare monopoly and perfect competition with regard to the following:( i) price, ( ii) output,( iii) welfare cost and ( iv) relationship between MC and price.PRICE AND OUTPUT DETERMINATION UNDER MONOPOLY 369
Find the equilibrium level of price and output for the monopoly firm.
Suppose demand function for a monopoly product is given as Q = 500 –0.5 P and cost function is given as C = 100 + 40 Q + Q
Will a monopolist remain in business in the short run if it is just covering its average variable costs? Explain with the help of a diagram.
A monopoly firm may earn normal or abnormal profits or may even incur losses in the short run,Do you agree with this statement? Give reasons for your answer.
Explain the equilibrium of a monopoly firm in the short run by using short run AC, MC, AR and MR curves. Why is monopoly price always higher than the competitive price?
Write a note on the relationship between average revenue and marginal revenue under ( i) perfect competition and ( ii) monopoly.
Are the revenue and cost curves under monopoly different from those under perfect competition?Illustrate and explain the difference between AR and MR curves faced by monopoly and a competitive firm.
What is monopoly? How does existence of a close substitute affect the monopoly power? What are the factors that create conditions for the emergence and survival of a monopoly?
Under perfect competition, firms are in equilibrium in the long run, when(a) P = SMC = SAC(b) SMC = SAC = AR = MR,(c) LAC = LMC = AR = MR(d) AR = MR but LMC > LAC?
Which of the following is relevant for a perfectly competitive industry?(a) Industry equilibrium is affected by the change in firm’s equilibrium.(b) Change in industry’s equilibrium affects firm’s equilibrium.(c) Change in industry’s equilibrium does not affect firm’s equilibrium.(d)
For a firm, the ‘shut-down’ point falls(a) anywhere below SAC(b) where SMC = SAVC = P(c) where SMC = SAV(d) where SAC = SAVC?
Which of the following features are absent in pure competition?(a) Large number of buyers and sellers(b) Free entry and free exit(c) Perfect knowledge.(d) Perfect mobility(e) Absence of collusion.
Which of the following statements are correct?(a) Perfect competition less perfect knowledge and perfect mobility is pure competition.(b) Under perfect competition, a firm fixes its price where its AR = MR.(c) A firm is a price-taker under perfect competition.(d) In a perfectly competitive
Suppose that a competitive firm is in long-run equilibrium. What will happen to price in the long run if there is a rise in demand for the product of the industry?
If all the firms in a perfectly competitive industry have U-shaped cost curves, can then supply curve of the industry be downward sloping?
Illustrate the derivation of the long-run supply curve of an industry under perfect competition and decreasing cost.
Write a short note on the relationship between firm’s short-run cost curves and supply curve.
What is basis of the short-run supply curve of a competitive firm? What is its likely shape?
How is short-run supply curve of a firm derived under perfect competition? Explain and illustrate.
Bring out the essential difference in the nature of equilibrium of a firm under perfect competition in the short run and in the long run.
Distinguish between short-run and long-run equilibrium of a firm operating under perfect competition. What is difference, if any, in conditions of equilibrium in the two cases?
Show how under the condition of perfect competition in the long run, the price of a commodity equal to its average and marginal cost.PRICE AND OUTPUT DETERMINATION UNDER PERFECT COMPETITION 351
Under perfect competition average revenue equals average cost in the long run. Why do firms produce under such a condition?
Do you agree that perfect competition leads to optimumization of the size of the firm? Illustrate graphically.
Explain the short run equilibrium of a competitive firm. Under what conditions would a competitive firm close down its business in the short run?
Discuss the importance of AR, AC, MR and MC in determining firm’s equilibrium under perfect competition.
Analyse the equilibrium of a firm under the conditions of perfect competition in the short run?
Under what market conditions a firm is a price-taker? What would happen to a firm if it becomes price-maker?
What is the relative position of a firm in a perfectly competitive industry?How does it choose its price and output?
What are the characteristics of perfect competition? Distinguish between perfect and pure competition.
What is meant by monopoly power? What are the measures of monopoly power? What are their limitations?
Distinguish between ( i) Perfect competition and monopolistic competition, and ( ii) monopolistic competition and oligopoly.
What are the different types of market structure. What are main features of different kinds of markets?
What is meant by market structure? What factors determine the market structure?
Which of the following conditions makes an approximate definition of‘market’?(a) Market is a meeting place for buyers and sellers.(b) The buyers and sellers meet to transact business.(c) The buyers and sellers must transact business by or without meeting in a place.
Which of the following statements are True or False?(a) The demand for a commodity is inversely related to the price of its substitutes.(b) When income increases, the demand for essential goods increases more than proportionately.(c) Decrease in input prices causes a leftward shift in the supply
From a demand function Qd = 2000 – 30 P and a supply function Qs =20 P, find out(a) equilibrium price,(b) equilibrium quantity, and(c) gap between demand and supply at P = `20 and P = `50.
What is meant by equilibrium price and quantity? What factors cause an upward right and upward left shift of the equilibrium point from its original position?
Suppose annual sales data of a book publishing company produces a demand function as Q = 5000 – 50 P. From this demand function, find out:(a) demand schedule and demand curve,(b) number of books sold at pricè25,(c) price for selling 2500 copies,(d) price for zero sales,(e) sales at zero price.
Find out equilibrium quantity from demand function Qd = 25 – 10 P and supply function Q = 25 P. What is the change in price if demand function changes to Qd =30 –10P, supply function remaining the same?
Explain why market equilibrium is determined at the intersection of the demand and supply curves.How is market equilibrium affected when consumers’ income changes, all other factors remaining the same?
Explain the law of supply through a supply schedule and a supply curve.Why does a supply curve slope upward to the right? What factors cause a rightward shift in the supply curve?MARKET STRUCTURE AND PRICING DECISIONS 343
Explain demand schedule, demand curve and demand function. Derive a demand curve from the function Q = 50 – 10 P.
What are the factors that are held constant while deriving an individual demand curve? What will happen when such factors are not held constant?
Define market demand. What are the determinants of market demand in the short run and in the long run? How do increase in consumers’ income and price of the substitute goods affect the demand for a commodity?
‘Demand’ is a word of common usage. What is the meaning of demand in economics? How is demand different from desire want and need?
A producer produces three commodities A, B and C and has limited inputs—storage and petrol.Input needs Products AB CStorage space = 8 units and petrol = 3 units.Storage 22 2Profit per commodity (per unit)Petrol 11 0A: `3, B: `7, and C: `6.Find the product mix that maximizes profit.
(a) Discuss the various ways in which linear programming might be used in aid of business decisions.(b) A manufacturer produces two products X and Y in two steps on machines A and B. The processing times for the two products on the two machines are:Machine A has 80 hours available and B has 120
(a) State the utility of linear programming in business decision-making.(b) A toy company manufactures two types of dolls; a popular doll A and a deluxe type doll Product Machine A Machine B B. Each doll of type B takes twice as long to X4 hours 5 hours produce one doll of type A, and the company
What is a ‘dual’ of a linear programming problem?
A firm produces three item, A, B and C at two plants, X and Y. The number of items produced at an operating cost per hour are given as follows.Plants Item Produced Per hour Operating cost AB Cper hour X30 60 40`1200 Y30 20 100`800 It is necessary to produce at least 400 items of type A, 800 of type
Show the solution zone of the following inequalities on a graph paper.5 X + y ≥ 10;X + y ≥ 6 X + 4 y ≥ 12;X ≥ 0, y ≥ 0 Find X and y for which 3 X + 2 y is minimum, subject to these inequalities.Use the graphical method.
Construct dual problems from Exercises 2 to 5, solve them, and compare your results.
Maximize p = 12 X 1 + X 2 10 1 + 9 X 2 2 X subject to 4 X 1 + X 3 18 1 + 2 X 2 32 where XX 1 + X 2 + X 3 ≥ 0 1 + X 2 10[Ans. p = 186]3 X 2 21 where X 1 ≥ 0, X 2 ≥ 0 LINEAR PROGRAMMING 321
Maximizeπ = 5 X 1 + 6 X 2 + 7 X 3 subject to X
Maximize Z = 3 X 1 + 5 X 2 subject to 3 X + Y 48 subject to X 1 + 3 X 2 ≥ 9 X + 3 Y 48 X 1 + X 2 ≥ 5 where X ≥ 0, Y ≥ 0 2 X 1 + X 2 ≥ 6 [Ans. p = 108]where X 1 ≥ 0, X 2 ≥ 0 [Ans. p = 108]
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