Question

1. (a) Describe all of the competitive equilibria in a market for a single item, with multiple buyers, each with a positive valuation for the item. (b) Now consider a modified market with k identical items and at least k + 1 buyers. Assume that each buyer has a positive valuation for the item and only wants a single item. Describe all of the competitive equilibria in such a market.

Answer 1

      All firm sell an identical product   means the the commodity is homogeneous it means there is a large number of buyer for single particular     Product    and the firm enter or exit the market   without any restriction.

And equilibrium is a situation or point where market demand will be equal to the market supply, In long run both demand and supply of product will affect the normal profit   at the equilibrium point. It is a type of market which is based on the assumption that large number of firms producing single product.

“Monopoly” It is a situation when there is only one seller of a product but the number of buyers is large ,there is no close substitute of the product ,in these type of market seller is price maker not price taker.                         

                                                                        each buyer has a positive valuation for the item and only wants a single item because the perfect completion is the model of assumption that a large numbers of buyers .in this market one unit of goods and services, cannot be differentiated from any other on the basis of discrimination of product, there is assumption that goods are very identical in nature.

Marginal cost is equal to average revenue ,I,e-( MC=AR)

(P=MC)