Economics-For Managers


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Pages : 263;Paperback;
210 X 275 mm approx.

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Pages : 250;Paperback;
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Economics For Managers, Management Textbook, Workbook

Microeconomics : Perfect Competition : Chapter 6

In perfect competition, there is large number of buyers and sellers, products are homogeneous, there are no barriers to enter and exit, buyers and sellers have perfect knowledge about the market conditions and there is perfect mobility of resources and the absence of transportation cost. Supply and demand forces determine the price of a commodity. Short run equilibrium of a firm is based on the total revenue and total cost, and marginal revenue and marginal cost. Firms in an industry try to maximize their profits by adjusting the output to a level where MC=MR. Long run equilibrium plays a crucial role in deciding the existence of the firm. Profits earned by the firms would attract others to enter the industry and with the entry of new firms there will be a shift in the short-run industry supply curve to the right until it intersects with the market demand curve at the price at which all firms make zero economic profits. It is then that the industry will be in equilibrium. To fulfil the marginal conditions of allocative efficiency, three properties are observed in a freely competitive market mechanism: efficient allocation of resources among firms; efficient distribution of goods produced between consumers; and efficient combination of products.

In competitive markets, prices equal the marginal benefits and marginal cost of goods. Taxes such as a lump sum tax, a profit tax, or a specific tax, will have an effect on price and output.

Imposition of a lump sum tax will not affect the firm and industry in the short run. However it will effect the firm and industry in the long run. Imposition of a profit tax will also effect the firm and industry in the long run. The lesser the proportion of specific tag the firm bears, the more will be the burden of the consumer.

Chapter 6 : Overview

Characteristics Of A Perfectly Competitive Market
Supply And Demand In Perfect Competition
Short Run Equilibrium Of The Competitive Firm
Long Run Equilibrium Of The Competitive Firm

Efficiency Of Competitive Markets
Long Run Competitive Equilibrium and Allocative Efficiency

Efficient Output of a Good
Efficiency in Competitive Markets

Effect Of Taxes On Price And Outputs
Imposition of a Lump Sum Tax
Imposition of a Profit Tax
Imposition of a Specific Sales Tax