Assignment in Micro economics - Essay Example

In micro economics, both individuals and firms make choices on how to use limited economic resources to meet their consumption and production factions respectively (Armstrong, Kervenoael and Read, 1998). Graph of relationship between the three situations above, Where MR=Marginal Revenue, AR=Average Revenue and MC=Marginal Cost. The output is represented by Q while price by P. A monopoly may want to reduce out put from Q1=17.5units to Q3=25units so that he can sell at a higher price P3=$35 (Asian Development Bank, 2002).

However, economies of scale substitution may arise leading to a shift in marginal cost from MC1 to MC2 (Pirayoff, 2004).This shift may cause an increase in monopolist out put from Q1=17.5 Units to Q2=40 units. Leading to a decrease in price from a competitive price to a lower price P2=$30 despite the availability of a monopoly price =$35 (Brakman and Heijdra, 2004). (b)A gardener states that for only $1 in seeds, she has been able to grow over $20 produce-enormous profits. Do you agree or disagree with her/ explain.

Yes I agree with her because if she was operating in a monopolistic competition, it is possible to earn enormous profits in the short run as shown in the diagram below (Garner and Short, K2009). Based on computations, it can be scrutinized that, a fraction of 50 Sam Adam bear: 50bowls of clam chowder will maximize Kerry’s Utility which occurs as a result of consumption between Pints of Adam Samuel bear and bowls of Legal Seafood’s famous clam cbowder (Frank, and Bernanke, 2003). Armstrong, H, De Kervenoael, R, Li, X, & Read, R 1998, A comparison of the economic performance of different micro-states, and between micro-states and.., World Development, 26, 4, p.

639, Academic Search Premier, EBSCOhost, viewed 4 December 2012. Garner, T, and Short, K 2009, Accounting for owner-occupied dwelling services: Aggregates and distributions, Journal Of Housing Economics, 18, 3, pp. 233-248, Academic Search Premier, EBSCOhost, viewed 4