Short Answer TypeExplain why firms are mutually interdependent in an oligopoly market.
Oligopoly in a commodity market occurs when there are a small number of firms producing a homogenous commodity. There are two types of oligopoly, collusive and non-collusive. Oligopoly market structure consists of only a few firms. The firms under such a market structure experience a high degree of mutual interdependence. Firms are interdependent because each firm takes in to consideration the likely reactions of its rival firms when deciding its output and price policy. It makes a firm dependent on other firms. The firm may have to reconsider the change in the light of the likely reactions. The price and output policy of a firm affects the policies and profit of another firm. This is because when one firm lowers (rises) its prices, the rival firms may or may not follow suit. This makes the demand curve under the oligopoly market structure indeterminate, thereby makes the firms mutually interdependent in an oligopoly market.
Define an indifference curve. Explain why an indifference curve is downward sloping from left to right.
When price of good is Rs 7 per unit a consumer buys 12 units. When price falls to Rs6 per unit he spends Rs 72 on the good. Calculate price elasticity of demand by using the percentage method. Comment on the likely shape of demand curve based on this measure of elasticity.
What does the Law of variable Proportions show? State the behaviour of total product according to this law.
Explain how changes in prices of other products influence the supply of a given product.
Long Answer TypeExplain the conditions of a producer’s equilibrium in terms of marginal cost and marginal revenue. Use diagram.
Market for a good is in equilibrium. There is simultaneous increase both in demand and supply of the good. Explain its effect on market price.
Market for a good is in equilibrium. There is simultaneous decrease both in demand and supply of the good. Explain its effect on market price.
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