Questios about graphs - Lab Report Example

Questions on Graphs Q1. b) The illustration above in zero economic profits means that the firm cannot produce anything beyond the opportunity cost of productions though the revenues do cover the cost of inputs. This market will remain at the long-run equilibrium since the firm will neither enter nor exit in the industry. Also, free entry and exits ensure that the equilibrium output is such that the surviving company ensures normal profits, in this case zero economic profits (Caimcross 66).Q2. b) Minimized losses in the short-run are achieved by operating at a loss, in this case the firm continues operating even if it incurs a loss.

Such is the best solution rather than closing down the company. The number of firms remains steady in neither short-run, whereby no firm can enter nor exit. When the market price exceeds the average variable cost, the revenue generated by the firms will then cover the variable cost and some revenue left over to offset the fixed costs. The quantity supplied by each company will decrease and remain steady to where it can sustain to operate in the conditions. Thus, the quantity supplied in the market may not meet the required demand by the customers since the quantity will neither decrease nor increase till the firms are out of operating at loss (Caimcross 66).Q3. b) Monopoly is a market where production is under the control of a single supply.

The marginal revenue is less than the average revenue because when the monopolists wants to sell more, they must reduce the price on each unit; this prevents the competition from happening.Q4. b) Economic profits are driven to zero when the demand curve, as well as the average total cost curves, are tangent to each other. In this case, the prices are equal to average total cost and thus the firms will earn zero economic profits. The quantity of outputs in the monopolistic competition is much smaller than the quantity that minimizes average total cost.

But in perfect competition, price is equal to the minimum average total cost thus the companies produce at their efficient scale. The price in monopolistic competition is greater than marginal cost since the firm has the market power unlike in perfect competition where it is equal to marginal cost.Q5. b) Oligopoly is where a few firms exist in the market. The oligopolies face the downward sloping demand curve. In this case, the rival firms cannot follow a price increase by one firm hence demand will be relatively elastic and rises in the price that will lead to a fall in total revenue of the firm.

Also, the rivals firms are more likely to match the price falls by other firms in order to avoid a loss of market shares. And thus, the demand will be more inelastic and falls in price can also lead to a fall in total revenue. Hence, this explains the shapes of the demand curve faced by oligopolies (Caimcross 66).Work CitedCairncross, Alec. Introduction to Economics. London: Butterworths, 1966. Print