What is meant by prices being rigid? How can oligopoly behavior lead to such an outcome?
Price rigidity implies that the price is unresponsive to the changes in demand. This is because of the fact that even if any firm raises the price of its product with the motive of earning higher profits, the other firm will not do so, and the first firm will lose its customers. On the other hand, if one firm lowers its price in order to earn higher profits by maximising its sales, then in response, the other firm may also reduce the price. Consequently, the increase in total market sales is shared by both the firms. The firm that initiated selling at a lower price may get a lower share of the increase than expected. Therefore, the firms do not change their prices due to the fear of rival reaction. Hence, there is no incentive for any firm to change its price. That is why the prices are regarded as rigid prices or sticky prices.
What is the supply curve of a firm in the long run?
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
Distinguish between a centrally planned economy and a market economy.
How does the imposition of a unit tax affect the supply curve of a firm?
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4.
What is the relation between market price and average revenue of a price-taking firm?
What is budget line?
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
What does the price elasticity of supply mean? How do we measure it?
Why is the short-run marginal cost curve 'U'-shaped?
Suppose the market determined rent for apartments is too high for common people to afford. If the government comes forward to help those seeking apartments on rent by imposing control on rent, what impact will it have on the market for apartments?
Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
The following table shows the total revenue and total cost schedules of a competitive firm. Calculate the profit at each output level. Determine also the market price of the good.
Quantity Sold | TR (Rs.) | TC (Rs.) | Profit |
---|---|---|---|
0 1 2 3 4 5 6 7 |
0 5 10 15 20 25 30 35 |
5 7 10 12 15 23 33 40 |
A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
Marginal Revenue |
100 |
90 |
80 |
70 |
60 |
50 |
40 |
30 |
20 |
10 |
Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost is Rs.1000, describe the equilibrium in the short run and in the long run.
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
What is the total product of input?
What is the supply curve of a firm in the long run?