Words: 1100Q1:a. If a firm in a competitive market doubles the amount of output it sells, what is...

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Words: 1100Q1:a. If a firm in a competitive market doubles the amount of output it sells, what is the impact on the firm's price and revenue?b. Explain characteristics of public goods and common resources with examples.Q2:a. What are the two main differences between monopoly and competition?b. What are the four principles of economic decision making?
	
Document Preview: Words: 1100Q1:a. If a firm in a competitive market doubles the amount of output it sells, what is the impact on the firm's price and revenue?b. Explain characteristics of public goods and common resources with examples.Q3a. What are the two main differences between monopoly and competition?b. What are the four principles of economic decision making?

David · Accepted Answer

1 
 
Q1: 
a. If a firm in a competitive market doubles the amount of output it sells, what is the 
impact on the firm's price and revenue? 
Answer – In a competitive market, the price and quantity are decided by the supply and 
demand forces which are balanced out at the point of equilibrium in the market. The 
firms in the competitive market are price takers and cannot change the price of the 
product on its own. Perfect competition is highly efficient market which actually does not 
exist now a day. The common example of competition is in case of agricultural goods in 
which it is quite difficult to distinguish the quality of the products.  
In a specific case, when the firm in the market increases its output level to be at doubled 
the original level, there will be rise in total revenue of the firm by exactly double the 
original revenue. This is because the firm will be able to increase its sales volume by 100% 
which will not have any impact over the price charged by the firm because the individual 
firm cannot have any influence over the price being charged. Hence, there will be overall 
rise in the revenue earned which is the product of the price charged and the amount of 
total output sold by the firm. Doubling the output of the firm will result into doubling the 
total revenue earned without having any change in the price of the product.
b. Explain characteristics of public goods and common resources with examples. 
2 
 
Answer – Public goods refer to those goods which are non-rivalry and non-excludable in 
nature. Non rivalry means that consumption of the good by one person will not reduce the 
amount of good available to the other persons. For example, national defence or national 
parks in which using these services by one individual will not make it difficult for other 
national individuals to use these services. Similarly, non-excludable means nobody can 
be denied to use these services or goods on any particular basis. It means that people do 
not pay for it explicitly before using these goods. In case of public goods, there will be 
underproduction of goods because it does not take into consideration the actual marginal 
social cost of production. Hence, it does not produce the actually social desirable level of 
public goods.

Words: 1100 Q1: a. If a firm in a competitive market doubles the amount of output it sells, what is the impact on the firm's price and revenue? b. Explain characteristics of public goods and common...

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