Discuss why the long run average cost curve is u-shaped

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Q1. Long run cost structure of a firm is influenced by many factors, some of which are beyond the control of a manager of firm. Discuss why the long run average cost curve is U-shaped by bringing about the importance of scale economies and diseconomies.

Q2. Perfect competition and monopoly are two extremes of market structure. Evaluate the statement by analyzing contrasting features and equilibrium price and quantity determination process under these two types of market. Illustrate your discussion with the help of real world examples.   

Q3. a. Other things remaining the same, what would happen to the supply of a commodity if the following changes occur? Illustrate your answers with the help of diagram.

1.  The price of commodity decreases. 

2.  A technological breakthrough helps in producing a commodity at a cheaper cost. 

3.  Price of inputs to produce that commodity increases. 

4.  Price of substitute increases.    

5.  Manager of the product expects the price of that product to rise in future. 

b. For the following situations, calculate elasticity of demand and comment on the answer. 

1.  When the price of commodity X was Rs. 12/-, 40 units it were demanded. When the price decreased to Rs. 6/-, 50 unit are demanded. Find price elasticity of demand and comment on the answer.

2.  When the income of a consumer was Rs. 24,000/-, he was demanding 20 units of a commodity. Now his income has gone up to Rs. 28,000/- and the demand for the same product has gone down to 15 units. Calculate income elasticity of demand and comment on the answer.

Reference no: EM131197244

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