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1. The diagram below represents the long run equilibrium of a firm in Imperfect Competition - Leaving Cert Economics - Question 1 - 2019
Question 1
1. The diagram below represents the long run equilibrium of a firm in Imperfect Competition. (a) (i) Write out in full what each of the five labels circled above re... show full transcript
Worked Solution & Example Answer:1. The diagram below represents the long run equilibrium of a firm in Imperfect Competition - Leaving Cert Economics - Question 1 - 2019
Step 1
Write out in full what each of the five labels circled above represents.
Answer
The labels in the diagram represent the following:
- P (Price): This is the selling price at which the firm sells its product.
- Q (Quantity): This represents the amount of output produced and sold by the firm.
- AC (Average Cost): This is the average cost of production for each unit of output.
- AR (Average Revenue): This is the average revenue earned per unit sold, which is equivalent to the price in this context.
- MR (Marginal Revenue): This refers to the additional revenue that the firm earns from selling one more unit of the good.
Step 2
Step 3
Step 4
Explain the term free entry and exit.
Answer
Free entry and exit refer to the conditions in a market where firms have the unrestricted ability to enter or leave the market without facing barriers. This encourages competition as new firms can easily enter the market when they see potential profits, and they can exit when facing losses, ensuring a dynamic balance in the industry.
Step 5
State two other characteristics of Imperfect Competition.
Answer
- Many Buyers and Sellers: There are numerous buyers and sellers in the market, allowing for a variety of choices but individual firms have limited market power.
- Differentiated Products: Products offered by firms are similar but not identical, allowing firms to have some degree of pricing power.
Step 6
Write brief notes on each of these characteristics.
Answer
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Many Buyers and Sellers: In imperfect competition, price is influenced by supply and demand. Even though individual firms may not have significant influence over market prices, they can still affect market dynamics through their production decisions.
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Differentiated Products: Firms use branding and unique product features to distinguish their products from competitors, enabling them to set prices higher than in perfect competition.
Step 7
Outline two possible economic advantages and one possible economic disadvantage of the increased entry of firms into the market for household waste collection services.
Answer
Economic Advantages:
- More Competitive Prices: The entry of new firms typically results in lowered service prices as firms compete to attract customers.
- Greater Range/Choice of Services: Consumers benefit from an expanded selection of services as firms innovate and tailor offerings to meet diverse needs.
Economic Disadvantage:
- Duplication of Services: With multiple firms entering the market, there might be overlapping service areas, leading to inefficiencies or an oversupply of services that could result in increased waste of resources.