tutorial 23 - market structure 2014 bee qn (tutors)_unchanged

7/24/2019 Tutorial 23 - Market Structure 2014 BEE Qn (Tutors)_unchanged

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HWA CHONG INSTITUTIONYear Two H2 Economics 2013

Tutorial 23! "icroeconomics III # T$eor% o& t$e 'irm ( "ar)et Structure

TUTO*IA+ 23! THEO*Y O' THE 'I*" ( "A*,ET ST*UCTU*E

Su--este. answers to /EE uestions

Pg 23.2.12

1! Elain an. illustrate wit$ a re4enue5cost .ia-ram $ow a &irm6s suernormal ro&its s$rin)7ut still earnin- suernormal ro&its w$en .eman. &alls8

Figure 1: A decrease in supernormal profits (still > 0) when demand falls

Hwa C$on- Institution8 All *i-$ts *eser4e.8 Tutors9 Co%

1

:rice;*e4enue;Cost

Outut

P0 A "C AC

:1 ?

C1 Y

0 !

"*1

"#0

A*1

A#0

0 1

$0

From Figure 1% a fall in demandwill cause A#0 and "#0 todecrease to A#1 and "#1respecti&el'. hese resulted inlower outut &rom 0 to 1@lower rice &rom :0 to :1 an.unit cost rises &rom C0 to C18Suernormal ro&it .ecreases&rom :0C0/A to :1C1Y?8


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2! Elain an. illustrate wit$ a re4enue5cost .ia-ram $ow a &irm6s suernormal ro&its s$rin)an. ma)e a loss w$en .eman. &alls8

Figure 2: "aing losses*su+normal profits when demand falls


2

:rice;*e4enue;Cost

P0 A "C AC

C

1 ?

:1 Y

0 !

"#0

"*1

A*1

A#0

0

1$

0 Outut

From Figure 2% a fall in demand will

cause A#0and "#0to decrease to A#1

and "#1respecti&el'. hese resulted in

lower outut &rom 0 to 1@ lower

rice &rom :0to :1an. unit cost rises

&rom C0 to C18 Suernormal ro&it

.ecreases &rom :0C0/A to su7normal

ro&its o& C1:1Y?8


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Pg 23.2.13

Elain an. illustrate wit$ a re4enue5cost .ia-ram $ow a &irm6s suernormal ro&its s$rin) an.ma)e a loss w$en &ie. costs increase8

Figure 3: A fall in supernormal profits till maing losses when fi,ed cost increases


3

:rice;*e4enue;Cost

"0 AC

1

C1 ? A0

P0 /

0 A

"#

A#

0 $0

Outut

From Figure 3% a rise in fi,ed

cost will cause a&erage costs to

increase from A0 to A1. "

and "# do not change when

onl' fi,ed costs change% "cuts "# at the same point and

e-uili+rium output and price

remain the same at $0 and P0.

!ut profits ha&e shrun from

P00A! to losses 1P0!.


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Pg 23.2.1/

Elain an. illustrate wit$ a re4enue5cost .ia-ram $ow a &irm6s suernormal ro&its increasew$en t$e &irm6s 4aria7le costs &all .ue to a rise in ro.ucti4it%8

Figure /: A rise in supernormal profits when &aria+le cost decreases


/

:rice;*e4enue;Cost

"0 A

0

P0 A "C

1AC

1

:1

?

0

!

C1 Y

"#

A#

0 $0

1Outut

From Figure /% we can see that a fall

in &aria+le costs will decrease

a&erage costs from A0 to A1 and

marginal costs from "0 to "1.

hese resulted in $i-$er outut &rom

0 to 1@ lower rice &rom :0 to :1an. unit cost .ecreases &rom C0 to

C18 :ro&it increases &rom :0C0/A to

:1C1Y?8 Consumer surlus

increases 7% :0:1?A

tutorial 23 - market structure 2014 bee qn (tutors)_unchanged

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