Economics of Social Issues Study Set 2

Answer:

Diminishing returns:
Diminishing returns refer to the fall in output in the production process as a result of employing one more unit of resource.
Diseconomies of scale:
Diseconomies of scales refer to the cost disadvantage situation that may arise due to increase in size of the organization, thus causing a rise in the average cost of production. It is the opposite of economies scale.
The main difference of diminishing returns and diseconomies of scale is that diminishing returns are measured in terms of marginal, whereas diseconomies of scale are calculated in terms of average. Another difference is that diminishing returns are applied in the short run where one or more factors are fixed, whereas diseconomies of scale are applied in the long run where all factors are variable.

Answer:

Monopoly:
Monopoly refers to a market situation where a single firm has domination in the industry, supplies the whole market, and faces no competition.
Concentration ration:
Concentration ratio is a tool that quantifies the market share of four or eight biggest firms in the market. It is most commonly used to determine whether the market is heading toward oligopoly or showing characteristics of a monopoly.
In Industry A, one firm has 60 percent of market share of whole industries that show near monopoly power, whereas in Industry B, the four largest firms haS₂0 percent market share. This explains that industries have the potential for monopoly power.
Using concentration ratio has some limitation, which may give misleading information about monopoly power. While calculating the concentration ratio, it ignores sales of imported goods. It also ignores sales in geographical areas. By keeping this in mind, the limitation of concentration ratio is often used to measure the potential degree of monopoly power in an imperfectly competitive market.

Answer:

Long-run average cost curve:
The long-run average cost curve (LAC) is a curve that indicates in long run firm can produce with given any level production at the lowest cost.
Figure 1 illustrates a typical firm's long-run average cost curve.
In Figure 1, the vertical axis measures the price level and the horizontal axis measures the quantity per unit of time. As shown in Figure 1, a typical firm's long-run average cost curve is U-shaped. This is because, in the initial stage, AC decreases as the output increases. It is called the stage of economies of scale. Then, it reaches the minimum point of Q 0. After that point, as the output increases, AC starts to increase, which is called the stage of diseconomies of scale.