Competitive market
- Average cost vs. the number of enrolment
From the definition, average cost computation, total costs divided by the number of students. In this case, the number of students is 30, while the cost per student is $10000. The total cost then is ($10000×30) = $30000. Since the graph of the average cost is u-shaped, as in the figure below. The average cost starts from a high since the level of the output total cost dominates over the fixed costs. Through mathematical computation, the average cost tends to be large while the denominator is too small; hence AVC declines because and the fixed cost is always spread over an increasing quantity of admissions of students to the program. As the output expands, the average cost tends to start rising on the right side of the average cost curve.
As per the graph above, it’s clear that as the number of student increase, the average cost also increases. The trend obeys the rule that the fixed price will always be constant. Hence labels the average cost rise. According to economics insights, there is fixed cost with different cost per the concentration, which includes subject specialization in the MBA program diversity gives a broader spectrum of average cost calculation without any effect in the fixed cost set by the University. Therefore, it’s more efficient to offer a variety of concentrations in the program.
Yes. The University provides financial aids specifically to better high school records and various high test scores. Price discrimination on students is evident here since there will be no reasonable charge on the student’s fee and others. Students who perform well tend to get more financial aid than others.
- Monopoly graphs.
Monopolists have sole decisions to decide what the prices to set to the consumers; he or she has full control over the market. For him/her to maximize profits, there market demand and cost must be determined. For price discrimination, this is an instant in which the monopolist charges different prices to different consumers.
There is no deadweight loss under perfect price discrimination, although there is no consumer surplus, in the end, the quantity and prices become equal. The degrees of price discrimination are three degrees- first-degree- quite unrealistic degree, second-degree-real life where there are bargaining reduction and third-degree- market segmentation
Monopolists’ maximization of the profit level of output calculated by equating the Marginal revenue with its marginal costs. It is a similar strategy in the perfect competition which uses equilibrium as the level of the production.
A monopolist who exercises price discrimination provides lots of benefits to consumers since there are potentials of lower prices hence rewarding customers. The firm that does perfect price discrimination does the variation of the charge among the customers, and this places the firm its capability to set maximum prices for products hence enables it to capture all the available customers, therefore the consumer surplus achieved for the firm.
Price discrimination from an economic perspective is well applicable and conducive in that firms engaging in will be able to grasp all the market. They can control their price while engaging the consumers. Its profit level rises.
- Before Fred decides to open the Pizza delivery systems, he joins a monopolist market. Therefore, he must consider the following factors:
- Features of the products- must be outstanding
- Entry barriers available, what might block him
- Available information regarding the market and consumers
- Number of the sellers available
In a perfectly competitive market, there are price mechanisms; the price must be equal to the marginal cost, which results in a zero profit to the firm, while for monopoly, the prices always set above the marginal cost for the purpose having a positive economic profit. Therefore, Fred can monopolize the market and sets its prices higher than marginal costs.
When Fred enters the market, the competition changes to monopolistic competition. It has positive economic profits, which approaches zero in the long run. There will be an increase in-game; hence the monopolist will be forced to react positively to the change. Dominion will maximize profit where the MR=MC at the output where q1 and price p1, which results in a supernormal profit scenario. There are a lot of inefficiencies in the monopolistic market. As far as Fred and Domino are concerned, these include: production inefficiencies- the firm cannot produce on the lowest point of the average cost, dynamic efficiencies-firm can invest and develop well, and locative inefficiency in which the firms sets prices above the marginal costs.
Behavior in the long run
- Law of demand and supply, the quantity of product demand and quantity supplied should be equal for equilibrium measuring. For this concern, therefore, for competitive equilibrium, it’s always obtained when the producers maximizing their profits equals the consumers maximizing utilities. Equilibrium price the quantity supplied by producers is equal to the consumer’s demands. For economic equilibrium, a never reached equilibrium since the market always fluctuates and always moves towards the balance. All forces of the economy are balanced. There is no stable economic equilibrium.
- Economic efficiency
The market structure that has static economic ability, in the long run, is perfect competition.
It applied the following conditions When the firm is its long-run equilibrium where p=mc hence leads to allocative efficiency whereas average cost (AC) gets minimized, thus productive efficiency. The structure of the firm gives static economic efficiency because of the price seeking behavior, which always drives down the cost through the elimination of inefficient firms, as in the figure below.
For dynamic economic efficiency, there is an assumption that the perfectly competitive market structure produces homogenous products. However, there is little creativity for the pure designing of differentiated products; this always allows a supplier to form and explore competitive benefit in the marketplace to set up monopoly powers.
References
https://gmat.economist.com/mba-finder/sorrell-college-business/mba-general-management
https://admissions.rpi.edu/aid/cost