Business costs - Assignment Example

For example, a firm always prefer to produce any unit of output who’s per unit marginal revenue exceeds the marginal cost of the unit. By doing so, the firm would gain more revenue by selling that unit. On the other hand, if the marginal cost of a unit of output is more than its marginal revenue; in that case, the firm avoids producing that unit. If the firm produces such unit, it would incur loss rather than profit on the unit. 2- What do you understand by the term economies of scale? Reductions in per unit cost resulting from increase in market size and increase in firm are called as economies of scale.

Any unit cost reduction that occurs when a firm increase its production base or aggregately, the market in which that firm is producing its units, increase. Over that period of time; globally as well as locally, the firms and the markets are increasing. This increase in both is mostly contributed by the latest means of technology, which are mostly used nowadays in the process of production. For example, previously much work was carried out manually as a result, a sufficient amount of resources were consumed.

Thanks to machinsation and computerisation that have sufficiently added in the process of economies of scale. . enue- totally equalling with the total costs- or in total units of production, the cost of produced units offsets the revenue obtained by the sale of units. Some reasons may justify a company keep producing units even it is making loss. First, the loss, occurred by the break-even point or near to that point, most of time doesn’t last for a considerable period of time. The company may be experiencing a seasonal variation in the demand of a particular unit.

As soon as that period of seasonal variation in demand ends, the company again observes profits- revenue exceeding costs. 4- What market power may large firms enjoy? How and why may a government seek to limit this? Market power is associated with the behaviour of a firm and the way firms affect competitive conditions and prices in a market (Bourdet, 1991). The way a firm adopts its supply of goods and services production mechanism and its aggregate strategy towards its prices determines its market power.

For example, if a firm has 70 percent market shares in the sale of a particular commodity. Under this condition, it would not be incorrect to say that the firm has sufficient market power to affect and control the prices of that commodity. A government via legislation can restrict to limit the market power of the firm. By enacting a particular legislation and implementing it, the government would become in a position to limit the firm’s market power. The main reason for limiting the market power of the firm is to allow the competitive market conditions.

The competitive market conditions benefit producers and the consumers as it would protect consumers who would pay higher costs if the firm limit the required level of commodities in market. 5- Consumer gain as much from small business as from large ones. Analyse