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1372 words - 5 pages

Assignment - 2

Q 1) Consider the following demand function: 5P=-Q+46 and the following supply

(a) What is the equilibrium price and quantity?

(a) At equilibrium level: Qd = Qs

The equilibrium price is Rs 6 and the equilibrium quantity is 16.

(b) Suppose that the demand function shifts to right such that the new demand

equation now becomes: 5P=-Q+55. What is the new equilibrium price and

(b) At equilibrium level: Qd = Qs

The equilibrium price is Rs 7 and the equilibrium quantity is 20.

Total

Average

Fixed

Variable Cost

Cost

(AVC)

(TFC)

Average Total

Cost

(ATC)

0 0 420 420 - - -

10 100 520 420 10 52 100

20 180 600 420 9 30 80

30 240 660 420 8 22 60

40 280 700 420 7 17.5 40

50 350 770 420 7 15.4 70

60 450 870 420 7.5 14.5 100

70 630 1050 420 9 15 180

Q 2) (a) Compare monopolistic competition with Oligopoly

Difference between Monopolistic Competition and Oligopoly:

Monopolistic Competition Oligopoly

In Monopolistic Competition there are

many sellers and many buyers in the

In Monopolistic Competition there

are Differentiated Products. These

are the products that different or

are perceived to different. Products can

be differentiated on the basis of quality,

style, convenience, location, brand

In Oligopoly market there are a small

number of sellers in the market but

In Oligopoly market there are

Similar Products. These products

are identical and do not have many

differential elements.

In Monopolistic Competition there

are no barriers to enter into the

market or exit the market. There are

no legal policies or procedures that

the company needs to follow before

entering into the market or before

In Oligopoly market there are

high barriers to entry and exit the

market. There are legal policies and

procedures that the company needs

to follow before entering and exiting

the market.

In Monopolistic Competition there is a

little imperfect Information. That means

that the buyers and sellers do not have

complete information of the market.

Monopolistic Competition uses

advertising to shift the demand in the

In Oligopoly market there is slight

imperfect information.

Oligopoly market uses very little

advertising to create demand in the

market.

Monopolistic Competition Oligopoly

In Monopolistic Competition the firm is

In Monopolistic Competition Maximum

Profits are attained when the marginal

revenue is equal to marginal cost.

Oligopoly market uses Game Theory

to set Price in the market.

In Oligopoly market maximum Profit

is attained when marginal revenue is

equal to marginal cost.

(b) Explain the concept of diversification in detail and differentiate between

Horizontal and Vertical Diversification with suitable examples

Diversification is a strategy that takes an organization into new markets with new

products or services. Organizations may pick a diversification strategy for...

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