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Description

This paper answers the following questions –
1. Explain the essential differences between a firm in equilibrium under conditions of perfect competition and a firm under conditions of monopolistic competition?
2. Using the kinked demand curve model of oligopoly explain why oligopolistic firms tend to engage in non-price competition?
3. Using an appropriate diagram, explain why the prevalence of a natural monopoly can be regarded as a double edged sword in terms of the social benefits and costs characterising the industry. Explain the advantages and disadvantages of the rule for the efficient regulation of a natural monopoly.
4. Using an indifference curve model which has income on the vertical axis and leisure on the horizontal axis explain why wage increases (wages determine the budget constraint) may, at first result in an increase in the individual’s labour supply (reduction in leisure) but will eventually result in reduction in the individual’s labour supply.