hnd微观经济学报告1.docx

1. a) Total cost is the sum of Fixed cost and Variable cost. In the short run period, outputs will increase due to the increase of production. Fixed Cost does not vary with outputs, it is always a constant quantity. Variable Cost rises as outputs increase. Therefore, Total Cost curve is an upward sloping curve. b) Average cost is obtained by dividing Total cost by the number of units produced, i.e. Average Cost=Total Cost/Number of Unit. Average cost will vary with output because as production increases fixed cost will assume a smaller proportion of the cost of producing each unit. When output is small average cost will be high because fixed cost will be spread over a small number of unit. As output increases average cost will fall beacuse fixed cost will now be a smaller element of each unit. In addition, as firms grow they may be able to puchase materials at lower cost because they can order larger quantities. The cost reduction process stops when the level of output reaches the Technically Efficient point which is the lowest point of the Average Cost curve. When the output exceeds this point, the average cost will increase with the level of output because the Law of Diminishing Return sets in, i.e. increased output accompanied with more and more workers hired will result in a lower efficiency due to limited fixed resources, Cost Average Cost (Short Run) Technically Efficient Output Outputc) Marginal cost is the addition to Total cost resulting from increasing total output by one more unit, which can be calculated as: Marginal cost = Total costOutput. As output increases from zero, at first, inputs of variable factors are relatively less than inputs of fixed factors. Therefore, increasing the inputs of variable factors will raise the efficiency of production. MC falls as outputs increase. After certain output, as continuously increasing the inputs of variable factors, the production is inefficient. Therefore after that output, MC rises as output increases. The MC intially decline because of worker specilization and division of work, but eventually begin to rise when diminishing returns set in. 2. a) Oligopoly means that there are only a few sellers of a particular commodity. There are quite a number of oligopolies e. g. Banking, suppermarkets, detergent producers etc. b)Characteristics:There is high degree of industrial concentration in an oligopoly.Larger Barriers of entry and exist.Interactive Strategy.Prices are unlikely to change very often.Difficult to predict behavior.c) Price D P G D O Q QuantityA consequence of oligopoly may therefore be that a business may appear to face a kink in the demand curve for its product. This may occur because the moment a firm introduces price reductions competitors will respond by doing the same. This means that the elasticity of demand is greater above the ruling market price than below it as the figure shows.Price is OP and output is OQ. At prices higher than OP demand is elastic where a firm rising prices will likely cause loss of market shares. However, at price lower than OP, the fear is that cutting prices will force rivals to follow suit and there will be little gain in the way of additional sales. Only at the point G the firm can obtain the maximum revenues. Prices are said to be sticky. In the aspect of market competition, the way is non-price competition, such as advertising, loyalty schemes, free gifts, special offers, sales etc.3. a) Perfect competition describes a competitive situation in which numerous sellers each provide an identical product. And their price is in the same level and all the information is peer to peer between producers and consumers. As a result of this, no individual sellers has any control over the price of the product. b) Characteristics: Large number of buyers and sellers.Products are homogenous.Freedom of entry and exit.Perfect knowledge.No market force.c) P MC AC P0 D=MR=AR Q0 Output Firms price & Output BehaviourThe price is determined by the demand and supply in the marketplace. A firm in perfect competition has the same selling price regardless how much it produces. Hence, Average Revenue should be the same as Marginal Revenue,which is equal to the price established in the market place for the industry. In perfect competition market, no one firm can gain an advantage over others and firms can sell their goods up to the point at which they have maximised their profit. Economic profit can be made only in the short run. In the long run, firms tend to just break even, producing an output equal to Q0 and earning no economic profit. In this market, firms are “Price Takers” because any change in output of one firm is too insignificant to affect the market price.4. Profit maximization will occur as the marginal cost is equal to the marginal revenues because the increase in profit will become zero. The point at which marginal costs and marginal revenue are equal is the point at which profit is maximized. From this poin production increase will result in a situation where the increase in cost becomes greater than the increase in revenue. For the economist profits are the difference between total cost and total revenue. However, for an entrepreneur, profit is an incentive to undertake a risk in the belief that gain can be made. The major reason for many businesses fail is that the business didnt earn enough profit for it to stay in business. Therefore, the problem of profit maximization is that competers must take risk if they want to get high profit.5. The satisficing behaviour theory states that achieving specific targets with regard to sale, profit and market share will result in satisficed behaviour by those who run firms. Owners and managers of firms know that it may be possible to run a business with satisficed behaviour rather than profit maximisation because pressing for further profit in the long run may result in unintended damage. It is based on the facts that:The complexity of decision-making process may lead to managers following “rules of thumb” solution rather than aiming for profit maximisation all of t