a) ‘‘Demand curve is the Average Revenue (AR) curve of a firm.’’ Do you agree? Discuss briefly, with reason in support of your answer.
● Yes, I agree with the statement. The following statement supports my answer:
● The average revenue curve is a curve that explains the relationship between the average revenue of a firm which it has earned by selling the good and the quantity of the output of the goods sold.
● Average revenue curve = Total revenue/Quantity
= Price *Quantity/Quantity
● The demand curve shows the relationship between the price=AR and the quantity demanded of a good in the market.
● The average revenue curve is basically the price of a good. So, the average revenue curve is also called the demand curve.
(b) The market for a commodity is in equilibrium. The supply of the commodity increases without any corresponding change in the
demand for the commodity. Discuss the impact of the change on the equilibrium price and equilibrium quantity.
● The market is in equilibrium. It means that the quantity demanded is equal to the quantity supplied.
● The supply has increased without any increase in demand.
● The X-axis shows the quantity demanded and supplied and the Y-axis shows the price of the good.
● D is the demand curve and S is the supply curve.
● The market is in equilibrium at A, where both the curves intersect.
● With the increase in supply, the supply curve shifts from S to S1.
● There is excess supply at OP price. The supply is PB and the demand is PA. The excess supply is equal to AB.
● Due to this excess supply, the producer will reduce the price.
● This will lead to a downward shift in the supply curve from B to C, as well in the demand curve from A to C.
● So, the equilibrium price falls from Op to OP1.
● The equilibrium quantity increases from OQ to OQ1.
Monopolistic competitive firm is a set of the market that sell closely related but differentiated products, in terms of size, shape, etc.
The three main features of a monopolistic competitive form of
a) The demand curve slopes downwards as more goods can be sold only at a lower price.
b) The firm is neither a price taker or a price maker. It has partial control over price due to product differentiation.
c) Heavy selling cost is incurred on advertising their goods to create awareness among the consumers.
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