Q5) Construct a firm under pure monopolistic condition. Then 4 firms enter the market, when government...

Q5) Construct a firm under pure monopolistic condition. Then 4 firms enter the market, when government deregulate monopoly. Graphically, show that equilibrium market price in the long run, when 5 firms construct a cartel. Explain changing process in the market.

(please work on this, if you have enough knowledge about topic !!!! )

Solutions

Expert Solution

LAC= LONGRUN AVERAGE COST

LMC= LONG RUN MARGINAL COST

AR= LEAD AVERAGE REVENUE

MR= LEAD MARGINAL REVENUE AND MC= LEAD MARGINAL COST

MR=MC at point E EQUILIBRIUIM

OM = OUTPUT = OP cost = AM

LAC =AR at point A therefore firm is earning normal profit

LONG-RUN EQUILIBRIUM IN MONOPOLISTIC COMPETITION

FIRMS WILL NOT EARN SUPER NORMAL PROFIT ; Chamberlin had used the word ' product group ' at the place of industry to those firms which produce differentiated product. there is freedom of entry and exit of firms in product group so all the firms obtain only normal profit . or in other words in long run due to freedom of entry of firms super normal profit are not earned
firms will not incur loss ; if any firm is getting loss in long run then it will be better to stop the production and exit from the group EQUILIBRIUM MARKET PRICE IN LONG RUN
WHEN 5 FIRMS FORM A CARTEL THEY WILL ACT LIKE MONOPOLY where MR= MC MC is horrizontal is equal to average cost there will profit equal to rectangle 's area .
IN LONG RUN in long run there will be zero economic profit because equlibrium occurs at point where average cost= demand this in case of ' cut throat competition'

Rahul Sunny answered 1 month ago

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