Essay on Equilibrium Monopoly and Big difference Between Production and Offering Cost

a) Explain the between short-run equilibrium and long-run equilibrium in monopolistic competition. b) " Best competition is a more desirable market type than monopolistic competition. ” Discuss. 01 24 14

Wednesday several November 2007 Paper 1:

Short Run: When there is a Fixed cost, and later some of the factors chage Long Run: When there is no fixed price, all the costs change

(A)

Presumptions

Large number of firms – every single firm posseses an insignificantly small share of the market. Independence – because of a large number of businesses in the market, each firm is usually unlikely to affect the rivals to any great extent. To make decisions will not have to consider how its rivals will certainly react. Liberty of admittance – any firm can easily set up organization in this industry. Product differentiation – each firm produces a different services or products from its competitors. Therefore every single firm looks a down sloping demand curve. This is the key big difference from ideal competition. Product differentiation requires creating distinctions between items, either real or dreamed of, in buyers minds and is likely to involve various forms of non-price competition such as personalisation and promoting. Short Run:

Much like other industry structures, earnings are strengthened in monopolistic competition where MC sama dengan MR. The AR and MR curves are more elastic than for a monopolist and there is more substitutes available. The gains depend on the strength of demand, the positioning and elasticity of the demand curve. Inside the short run for that reason firms may be able to make supernormal profits. This example is proven in the picture below.

Long term:

In the long run firms will enter the industry captivated by the supernormal profits. This will likely mean that with regard to the product of every firm will certainly fall as well as the AR (demand curve) can shift left. Long run equilibrium occurs wherever only typical profits happen to be being made because new organizations will keep entering as long as you will find supernormal profits to be produced. In balance, the demand shape (AR) will be tangential for the firm's long run average cost curve as shown inside the diagram below. The long-run characteristics of the monopolistically competitive market happen to be almost the same as in perfect competition, with the exception of monopolistic competition having heterogeneous items, and that monopolistic competition requires a great deal of non-price competition (based on refined product differentiation)

(B)

A large number of buyers and sellers. No one has power over the market.

Perfect understanding by all parties. Customers are aware of all the products offered and their rates. Firms can sell as much as they really want, but simply at the value ruling. Therefore sellers do not control over market price. They are selling price takers, certainly not price creators. All companies produce the same product, and all products will be perfect alternatives for each various other, i. at the. goods developed are homogenous. There is no marketing.

There is liberty of entry-and-exit from the industry. Sunk costs are handful of, if any. Firms can easily, and will come and go as they desire. Companies in perfect competition in the long-run are both productively and allocatively efficient.

------------------------------------------------------------------------------------------------------------------------ Distinguish between production cost and selling price

Under compression costing you may have direct supplies direct labour variable manufacturing overhead and stuck overhead in to product price. then this figure will probably be placed on the total amount sheet since inventory after that to COGS when sold.

However selling and administrative cost will be mirrored the later on part of the income statement rather than in the cogs. These cost are know as the period cost as they are not related to the manufacturing process.

earnings - cogs = major profit

major profit -- period cost= profit prior to taxes

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