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By increasing the price of a good if total revenue also increases then price elasticity of demand In the markets for goods and services the households buy and firms sell How can consumer maximize total utility ? Maximizing Total Utility. Total utility is maximized when all the consumer's income is spent and when the marginal utility per dollar spent is equal for all goods. If all income is not spent, utility could be improved by spending more. Therefore, the consumer will spend all income. Define monopoly The barriers which prevent other firms to enter the market Market situation where one producer (or a group of producers acting in concert) controls supply of a good or service, and where the entry of new producers is prevented or highly restricted. Economies of large scale production. If a market has significant economies of scale which have already been exploited by the incumbents, new entrants are deterred. Network effects A network effect is the effect that multiple users have on the value of a good or service to other users. Ownership or control of a key scarce resource. Owning scarce resources, which other firms could use, creates a considerable barrier to entry, such as an airline controlling access to an airport. High set-up costs. High set-up costs deter initial market entry. Many of these costs are sunk costs. Q1) Explain the relation between marginal cost and average total cost Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced This graph is a cost curve that shows the average total cost, marginal cost, and marginal revenue. The curves show how each cost changes with an increase in product price and quantity produced. Suppose a firm's Average total cost is 80, its variable cost is 300 and its output level (Q) is 50 units. Calculate the average fixed cost (AFC) of the firm Law of the supply, how the following factors will shift the supply curve and change the price (P) and the quantity (Q)? If there is an expectation of increasing transportation costs. If the prices of raw material increase in automotive industry If number of sellers increases in the market The number of sellers: If the number of sellers increases, the supply of the good rises. Along a particular supply curve all factors that affect the supply, other than the productโs price, are held constant. When Technology advanced: As technological knowledge advances, firms are able to produce more at each potential price. the variable that will cause the supply curve to shift, raised the cost of importing raw materials Part 2 Q.No.1: in the following table the data on the units produced of good A and total product of labor is (TPL) is given Labor TPL APL Marginal MPL ๐ด๐๐ฟ = 1 10 2 15 3 25 ๐๐๐ฟ ๐ฟ 10 = 10 1 15 = 7.5 2 25 = 8.33 3 ๐๐๐ฟ = ๐๐๐ฟ โ๐ฟ 5 =5 1 10 = 10 1 15 = 15 1 4 i. 40 40 = 10 4 Define average product of labor APL? The marginal product of a factor of production is generally defined as the change in output associated with a change in that factor, holding other inputs into production constant. The marginal product of labor is then the change in output (Y) per unit change in labor (L). ii. What is the APL if we employ 4 units of labor? Given the simple production function Q = 3K + 4L, where L is the quantity of labor employed and K is the quantity of capital employed, Where K = 2 and L = 4, Q = 3(2) + 4(4) = 6+4 = 10 iii. Define marginal product of labor? Measure of the physical increase in the output of a firm or economy; it is the output that results from iv. hiring one additional worker, all other factors remaining constant. Iv. At what level of production marginal product of labor is negative? When the marginal product of labor becomes negative, it is known as negative marginal returns. Diminishing returns occur when the marginal product of the variable input is negative V. how many labor to be employed to reach at Maximum level of TPL? When AP is max, AP = MP = 30 at 4th unit of labor Graph has units of output on the vertical axis. The output, q, depends on the input, in this case, labor (L). Marginal Product of Labor, MPL, first increases then decreases at the input where diminishing marginal returns to labor sets in. Total output can be determined by multiplying APL and L. For example, at labor input, L = 10, APL = 120, so total output is 1200. Note the MPL intersects APL at the latter's maximum. You can also draw the marginal and average product of capital, or any other input if you know the production function. Part 3 essay type Q.No.3: How the following factors affect the price and quantity at the equilibrium? (i) If population increases in the Gulf Region. As the population increases in an area, the number of buyers will ordinarily increase as well, and the demand for a good will increase. Normal increases in income and population caused a smaller rightward shift in demand from D2005 to D2006 .the market equilibrium moved from point A to point B with an increases in equilibrium. (ii) If government announces 10% increases in customs duty on the imports of auto parts The expectation that an increased demand for remanufactured parts could these parts are promise higher margins. Then the transport will be expensive and buying care prices will be high , the demand will shift downward and supply trying to shift upward right until equilibrium happen again in market