Answer:
Market structure:
Market refers to a place or medium where buyers and sellers trade their goods. Market structure refers to the characteristic features of the market that is determined by the behavior of the market.
• Perfect competition refers to the market structure with the features of more number of sellers and buyers in the market. Firms sell homogenous products. Price is fixed by the market demand and supply. Individual firm cannot change the price. Firms can easily enter or exit from the market. Firms and consumers are well informed about the market. Firms are competing with each other.
• Monopoly refers to the market structure with the features of a single seller and more buyers. Firms have full control over the market. Price is fixed by the monopoly producer. There is a restriction for entry of a firm.
• Oligopoly refers to the market structure with the features of a few sellers and more buyers. Firms are producing homogenous goods. Firms are competing with themselves. There is no easy entry into the market due to the huge investment. Information about the market is not available.• Monopolistic competition refers to the market structure with the features of more buyers and more sellers. Each firm sells the homogenous product with a different brand name. Firms can easily enter or exit from the market.
Following are the factors to determine the market structure:
• Number of buyers and sellers.
• Degree of uniformity.
• Easy entry into and exit from the market.
• Competition among the firms.
Answer:
Fixed cost:
Fixed cost refers to those costs which remain the same throughout the production. Examples such as, the building, machinery, rent, fire accident insurance etc. are considered as fixed costs. Even though a firm is not producing anything, it has to incur fixed cost.
Variable cost:
Variable cost refers to those costs which will vary in response to a change in the amount of goods produced. The variable costs are inversely proportional to the sale of goods. As the sale of goods or production of goods increases, the variable cost involved increases. Examples: raw materials, electricity bill.
Minimizing the loss:
Even though the price of the product is not covering the full production cost, a firm can continue its production if the price is more than its average variable cost. When the price is more than the average variable cost, then the excess amount will cover some of the fixed cost which minimizes the total cost.
a.Total cost exceeds total revenue:
In this situation, the additional information about variable cost and fixed cost is required to conclude whether the firm will continue its production or shut down.
If the firm's revenue exceeds the variable cost, then the firm can continue its production. Because when the revenue is more than the variable cost, then it covers some portion of the fixed cost, which in turn reduces the total cost. If the firm does not produce anything, then it has to pay all its fixed cost.
b.Total variable cost exceeds total revenue:
If the firm's total variable cost exceeds total revenue, then the revenue does not cover the variable cost. When the total variable cost is more than total revenue, then it covers some portion of the variable cost. Therefore, the firm has to pay all its fixed cost plus the remaining variable cost, which in turn maximizes the cost. If the firm does not produce, then it has to pay only its fixed cost which minimizes the cost. Hence, the firm should shut down in the short run.
c.Total revenue exceeds total fixed cost:
In this situation, the additional information about variable cost is required to conclude whether the firm will continue its production or shut down.
If the firm's revenue exceeds the variable cost, then the firm can continue its production. This is because when the revenue is more than the variable cost, then it covers some portion of the fixed cost, which in turn reduces the total cost. If the firm does not produce, then it has to pay all its fixed cost.
d.Marginal revenue exceeds marginal cost:
Additional information required to decide whether the firm can continue the production or not.
Even though a firm's marginal revenue exceeds marginal cost, there is a possibility of incurring loss. If the marginal cost exceeds the marginal benefit with greater amount, then it is possible to minimize the cost.
e.Price exceeds average total cost:
Average total cost refers to cost involved per unit. When the price is higher than the average total cost, then the price covers all the cost per unit. Hence, the firm can continue its production at the given price level.
f.Average variable cost exceeds price:
When the average variable cost exceeds the price, then the price does not cover the average variable cost. Hence, the firm has to pay the fixed cost and the remaining variable cost, which in turn maximizes the cost. If the firm does not produce anything, then it has to pay only its fixed cost which minimizes its cost. Hence, the firm should shut down the production in the short run.
g.Average total cost exceeds price:
In this situation, the additional information on variable cost and fixed cost is required to conclude whether the firm will continue its production or shut down.
Even though a firm's total cost exceeds price, if the firm's revenue exceeds the variable cost, then the firm can continue its production. Because, when the revenue is more than the variable cost, then it covers some portion of the fixed cost, which in turn minimizes the total cost. If the firm does not produce, then it has to pay all its fixed cost.
Answer:
Fixed cost:
Fixed cost refers to those costs which remains same throughout the production.
Examples: rent, fire accident insurance, etc.Variable cost:
Variable cost refers to those costs which are varying in response to change in production. Examples: raw materials, electricity bill, etc.Total cost:
Total cost is the summation of all costs which are involved in the production. Determine the total cost using the formula:
Total revenue:
Total revenue refers to the revenue generated by selling total output at a given price. Determine the total revenue using the formula:
Profit and loss:
Profit refers to the value of revenue exceeding the cost. On the other hand, loss refers to the cost exceeding the revenue. Determine the profit using the formula:
a)Prepare a complete table using the formulas of total cost, total revenue, and total profit: (All amounts are in $):
b)From Table it is observed that the maximum profit $60 is obtained at the
unit of output.
c)Marginal revenue refers to the additional revenue made to the total revenue by selling one more unit of good. Determine the marginal revenue using the formula:
Average revenue refers to per unit revenue. Determine the average revenue using the formula:
Following table shows the marginal and average revenue: (All amounts are in $):
d)First, determine the marginal cost using the equation:
Prepare a table to find the marginal cost: (All amounts are in $):
Analysis:
Conclusion:
• The marginal revenue is constant over the sales.
• Marginal cost is decreasing up to the
unit and then starts increasing.• The marginal cost is less than the marginal revenue till the
unit.
• The marginal cost is greater than the marginal revenue after the
unit.
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