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Economic1:MicroandMacroTheoryandApplicationI.Introduction:II.Body:Q1.Themobilephonemarketisbelievedtobeanoligopoly-whataretwocharacteristicsofthismarketstructure?Oligopolymeansthatthereareonlyafewsellersofaparticularcommodity.TherearequiteanumberofoligopoliesintheUK.E.g.banking,supermarkets,detergentproductionetc.Characteristics：1．Highdegreeofindustrialconcentrations2．GoodsorservicesmaybeverysimilarQ2Illustratewithanappropriatediagramanddescribethepriceandoutputbehaviorthatmaybeseeninanoligopolisticmarketstructure.Anoligopolycanreachthescaleeconomicanddownthecostwhichthemarketneeds.Itisamarketdominatedbyafewproducers,eachofwhichhascontroloverthemarket.Itisanindustrywherethereisahighlevelofmarketconcentration.Assumingthatfirmsareattemptingtomaintainahighlevelofprofitsandtheirmarketshareitmaybethecasethat:A)Thecompetitorswillnotfollowapriceincreasebyonecompany.AtpriceshigherthanP1demandiselastic.Risingpriceswilllikelycauselossofmarketshares.Itcanalsoleadtoafallinthetotalrevenueofthefirm.B)Thecompetitorsprefertomeetapricefallfollowotherfirmstoavoidlossofmarketshare.AtpriceslowerthanP1howeverthefearisthatcuttingpriceswillforcerivalstofollowsuitandtherewillbelittlegaininthewayofadditionalsales.Cuttingpriceswhendemandisinelasticalsoleadstoafallintotalrevenuewithlittleornoeffectonmarketshare.Ifso,therelativepricechangeismuchsmalleranddemandwouldbeinelasticinrespectofthepricechange.ThekinkinthedemandcurveatpricePandoutputQmeansthatthereisadiscontinuityinthefirm'smarginalrevenuecurve.Q3.ChooseanothermarketstructureandsuggesttwocharacteristicofthismarketstructureAnothermarketstructureisPerfectCompetition.Perfectcompetitionisacompetitivesysteminwhichalargenumberoffirmsproduceahomogenousproductforalargenumberofbuyers.Theyareprice-takersandsellasmuchoftheproductaspossibleatthemarketpriceCharacteristics:1.Freedomofentryandexittothemarketforbothbuyersandsellers2.Itmustbepossibletobuyorsellanyamountofthecommodityatthemarketprice.Q4.Foryourchosenmarketstructureandwiththeaidofanappropriatediagramdescribethepriceandoutputbehaviorinit.AssumptionsbehindaPerfectlyCompetitiveMarketAsweallknow,eachindividualfirmisassumedtobeapricetaker.Also,consumersarewell-knowthepricesallsellersinthemarketcharge.Theymaynotprefertobuyasameproductinahigherprice.Becauseofthecharacteristicsofthisformofmarketnoonecangainanadvantageandfirmcanselltheirgoodsuptopointatwhichtheyhavemaximizedtheirprofit.Fromtheshortrunviewofthecompany,wecanseetheexplanationofthediagramasfollow:PriceP1isthemarketprice.Becausethemarketpriceisconstantforeachunitsold,theARcurvealsobecomestheMarginalRevenuecurve.IfAR=MR,PriceAfirmmaximizesprofitswhenmarginalrevenue=marginalcostTheprofit-maximizingoutputisQ1.ThefirmsellsQ1atpriceP1.BecausetherulingmarketpriceP1isgreaterthanaveragetotalcost.Q5.WhattworoleswouldprofithaveplayedinattractingRichardBransontothemobiletelephonemarket?1.Profitistherewardtoentrepreneurs2.Profitistheincentivethatencouragesthemtotakerisks3.ProfitisasignaltoenteramarketQ6.AnalyzetwootheralternativestoprofitmaximizationasagoalofthefirmCompaniesshouldconsiderotherfactorsasfollow:1.SatisfyingBehaviorsItisbasedonthefactthatachievingspecifictargetswithregardtosale,profitandmarketsharewillresultin“satisfiedbehaviors”bythosewhoownandthosewhorunfirms.2.Individualmotives:Humanbeingsarecomplexandmayhaveconflictingmotives,bothasindividualsandincombinationasformalorinformalgroups.Onegrowingareainmostcountriesistheenvironmentalor“green”aspect.BoardroombattlesarefrequentlyidentifiedinFinancialPapersorMagazines.Theymayendupinsackings,resignationsorvotesonissues,whichmayhaveconsiderableeffectonhowafirmoperates.Q7.Discusswhatinfluencestheshapeofthetotalcost,averagecostandmarginalcostcurvesintheshortruninafirm.Totalcostisthesumoffixedandvariablecosts.Ifnothingisbeingproducedthenfixedcostswillbetotalcost.AsproductioncommencesandvariablecostsrisesowillTotalCost.Totalcostisaupwardtrend.Thediagramaboveshowstheeffectofmarginalcostonaveragetotalcost.Themarginalcostcurvealwayscutstheaveragecostcurveatitslowestpoint,likeQ1.WhenMC＜ATC,ATCfalls.WhenMC＞ATC,theATCwillbeincreasing.Intheshortrun,economistsdefinethisasthatperiodoftimeduringwhichatleastoneofthefactorsofproductionisfixedinsupply.Aslongasoneoftheproductionfactorsremainsfixedinsupply,afirmwillonlybeabletoincreaseoutputwithafallingcostoveralimitedrangeofoutputs.ThisistheLawofDiminishingReturns.Thisoccursbecausethefactor,whichisfixed,willreachamaximumoutputandcannotbeincreased.Addingtotheotherfactorswillnotincreaseoutputbutwillreduceproductivitybecauseeffectivelymoreresourceswillbeusedtoproduceeitherthesamequantityoraverysmallincrease.III.Conclusion:IV.References: