Economic Theory and Application Essay

1. The chase graph (not able to recreate, more everywhere in the text), shows a regular with a kinked demand curve a. What presumptuousness lies behind the shape of this demand curve? The kinked demand curve assumes that separate firms will follow set decreases and will not follow price increases. For instance, in an oligopoly model, based on two demand curves that assumes that other firms will not condition a firms price increases, but will match its price increases. The kinked demand curve model of oligopoly implies that oligopoly prices tend to be sticky and do not deepen as much as they would in other market structures given the assumptions that a firm is make about the behavior of its rival firms. Kinked demand was an initial attempt to explain sticky prices. It is an economic hypothesis regarding oligopoly and monopolistic competition.b. Identify the firms put on-maximizing output and price. In Figure 9.1 in the textbook, the firms profit-maximizing output and price is when there is an increase in price over the mean(a) marginal toll (the difference between p1 and the point vertically down from there that cuts the MC curve) gelt maximization is the process by which a firm determines the price and output level that returns the greatest profit. in that respect be several approaches to this definition. The total revenue total toll method relies on the accompaniment that profit equals revenue minus cost, and the marginal revenue marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost. c. Use the graph to explain why the firms price is belike to remain the same, even if marginal be change. If marginal be increase or decrease within the discontinuous range of the marginal revenue curve, the point at which marginal revenue equals marginal cost will remain the same.Thus, price and output do not change, even though be (and profits) ar e different. Marginal cost is the additional cost of producing an additional unit of output. Marginal cost shows the changes in costs as output changes. Total variable costs change as the level of output varies but total fixed costs are constant regardless the level of output. Therefore, total fixed costs do not influence the marginal costs of production and actually average fixed costs decreases continuously as more output is produced. Because total fixed cost is constant, average fixed cost must decline as output increases ad spreads the total fixed cost is constant over a larger number of units of output. Both average variable cost and average cost head start decrease and then increase.2. Some games of strategy are cooperative. One example is deciding which side of the channel to drive on. It doesnt matter which side it is, as long as everyone chooses the same side. Otherwise, everyone may bewitch hurt.