Microeconomics

What are the various sources of profits? Do you think that all profits can be explained in terms of the monopoly power exercised by the producer?

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Introduction Profit is the surplus remaining after all costs and expenses of running a business are deducted from its revenue. In economics, profit serves as a reward for entrepreneurship and risk-taking. However, the sources of profit are diverse and extend beyond just monopoly power. Understanding these sources provides insight into the dynamics of business success […]

What are the various sources of profits? Do you think that all profits can be explained in terms of the monopoly power exercised by the producer? Read More »

Distinguish between interest and profit. Is it not correct to say that both are earned by the capitalists for the capital they invest in the production process?

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Introduction Interest and profit are both forms of income derived from the use of capital in the production process. While they appear similar, they originate from different sources, serve different purposes, and are subject to different levels of risk. Understanding their distinction is vital to grasp the dynamics of income distribution in economics. Difference Between

Distinguish between interest and profit. Is it not correct to say that both are earned by the capitalists for the capital they invest in the production process? Read More »

Why should equilibrium between marginal cost and marginal revenue be a necessary condition for equilibrium of a firm?

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Introduction In microeconomic theory, the condition for the equilibrium of a firm is where Marginal Cost (MC) equals Marginal Revenue (MR). This is a fundamental principle in profit-maximization models for firms operating in any market structure. When this condition is met, the firm achieves optimal production—neither producing too much nor too little. Understanding the Concepts

Why should equilibrium between marginal cost and marginal revenue be a necessary condition for equilibrium of a firm? Read More »

What are the characteristics that have to be considered while identifying a Market structure?

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Introduction The concept of market structure refers to the organizational and other characteristics of a market. It is a crucial aspect in microeconomics that determines the behavior of firms within the market, the level of competition, and ultimately how prices and outputs are decided. Identifying the type of market structure helps in understanding how businesses

What are the characteristics that have to be considered while identifying a Market structure? Read More »

How is the Long run Average cost curve derived from Short run Average cost curves? Use suitable diagrams

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Introduction The relationship between short-run and long-run cost structures is crucial to understanding firm behavior. In the short run, at least one factor of production is fixed. In contrast, in the long run, all inputs are variable. The Long-run Average Cost (LAC) curve is derived from various Short-run Average Cost (SAC) curves and represents the

How is the Long run Average cost curve derived from Short run Average cost curves? Use suitable diagrams Read More »

What do you mean by marginal rate of substitution? Why does marginal rate of substitution of X for Y fall when quantity of X is increased?

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Introduction The Marginal Rate of Substitution (MRS) is an essential concept in consumer choice theory. It measures the rate at which a consumer is willing to give up one good (Y) to gain an additional unit of another good (X) while maintaining the same level of satisfaction. Definition of Marginal Rate of Substitution Formally, MRS

What do you mean by marginal rate of substitution? Why does marginal rate of substitution of X for Y fall when quantity of X is increased? Read More »

Distinguish between Perfectly Elastic, Perfectly Inelastic, Unit Elastic, Inelastic and Elastic supply curves with the help of diagrams.

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Introduction Elasticity of supply measures the responsiveness of quantity supplied to changes in price. Based on this responsiveness, supply curves are classified as perfectly elastic, perfectly inelastic, unit elastic, elastic, and inelastic. Each has unique graphical representations and implications in economic theory. Perfectly Elastic Supply A perfectly elastic supply means that suppliers will supply any

Distinguish between Perfectly Elastic, Perfectly Inelastic, Unit Elastic, Inelastic and Elastic supply curves with the help of diagrams. Read More »

Explain the law of demand with the help of a demand schedule and a demand curve. Also explain its exception using the distinction between substitution and income effects.

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Introduction The Law of Demand states that, ceteris paribus, when the price of a good falls, the quantity demanded increases, and vice versa. This negative price-quantity relationship is captured by a demand schedule and portrayed in the demand curve. Demand Schedule and Demand Curve A demand schedule is a tabular representation showing quantity demanded at

Explain the law of demand with the help of a demand schedule and a demand curve. Also explain its exception using the distinction between substitution and income effects. Read More »

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