External diseconomies are factors outside the control of a firm that raise the firm`s costs as the market output increases. For example, suppose that a new firm`s entry increases the demand for labor. The average wage level will rise and existing firms must pay more in wages which will increase the average cost.

The consumer chooses between the consumption of the two goods so that the marginal rate of substitution equals the relative price. At the consumer’s optimum, the consumer’s valuation of the two goods equals the market’s valuation.

More formally, if a firm is producing, the firm’s profit will be maximized when marginal revenue and marginal cost are equalized or marginal profit is equal to zero.

Changes in Demand Versus Changes in Quantity Demanded

The foregoing discussion showed that sometimes there are movements along an existing demand curve and sometimes the demand curve actually shifts to the left or to the right. Distinguishing one from the other is very simple. A change in demand is not the same as a change in the quantity demanded. A change in the price of a good causes a change in the quantity demanded. For example, a higher price causes a lower quantity demanded for the good considered. On the other hand, change in demand or a shift of demand occurs when there is a change in the determinants of demand, other than the price. Changes in the determinants of demand, other than price cause a change in demand, or a shift of the entire demand curve from, say, D₀ to D₁.

Some common examples of capital include hammers, forklifts, conveyer belts, computers, and trucks. Therefore, the correct option is A.

The Marginal cost (MC) is the cost of producing the last unit of output. It tells us how the total cost (and the total variable cost) changes as the output changes. Therefore, the correct option is A.

Marginal revenue is calculated as MR = ΔTR / ΔQ. TR = P*Q. In the first case,    TR=9*1=9. After the price increase, TR=8*2=16. ΔTR=16-9=7. ΔQ=2-1=1. So, MR=7/1=7.

Monopoly is a market structure with only one producer/seller of a good and it does not act as a price taker but as a price setter. Therefore, the correct option is A.

All theoretical inferences depend on some critical assumptions:

• There are no positive or negative externalities.
• All buyers and sellers have perfect information.
• Consumer demand curves are based on willingness to pay.

The correct answer is E.

When firms do not cooperate with each other and selfishly pursue their own interests, they end up at an outcome worse for them than the cartel/collusion outcome. Hence, when firms act independently and compete, they lose; but consumers and society as a whole gain, since price is lower, total quantity is higher and deadweight loss is lower. The Correct Answer is E.

Marginal Changes

The term marginal is used frequently in economics to refer to small incremental adjustments made on an existing plan of action.

(1979355-1879354)/ (11-10)=100001

Shape of Demand Curves and Elasticity

The price elasticity of demand is closely related to the slope of the demand curve but the slope of a demand curve is different from its price elasticity of demand. However, there are exceptions in which the price elasticity of demand can be understood by looking at the slope of the demand curve. These cases are: (i) when price and quantity are identical, by looking at the slopes of the two intersecting demand curves it can be said which one is more elastic than the other. (ii) If the demand curve is vertical, its slope and its price elasticity is zero, and (iii) If the demand curve is horizontal, its slope and the price elasticity would be infinite.

Production is one of the main economic activities. The production process converts resources which are called inputs or factors of production into new goods and services called output over a period of time.

Game theory is the study of how people/firms/ countries make decisions in situations in which attaining their goals depends on their interactions with others. In oligopolies, the interactions among firms are crucial in determining profitability because the firms are large relative to the market. In all games---chess, poker, or Monopoly-- -the interactions among the players are crucial in determining the outcome.

Income Effect: When the price of a product, say, product Y, falls, people consuming the product will experience an increase in their purchasing power or “real income,” which reflects the amount of different products that they can buy with their incomes. With this increase in real income, the people will be able to buy more of product Y whose price has declined, or more of the other products. Please notice that they will be left with more money in their pockets, if they continue to buy the same amount of product Y after the price of good Y, (P_y) goes down. As it is understood from the information given the correct answer is “D”.

A product is said to be inferior if the demand for that product goes down when the income of the consumers increases. Tastes and preferences are non-price factors which may cause changes or shifts in demand curve.

Substitution effect: When the price of product Y, (P_y) falls, MU_y/P_y ratio will go up, exceeding MU/P  ratio of all other products in the consumption basket. This will make product Y relatively more attractive than other products, whose prices have stayed unchanged. As a result, consumers will want to purchase more Y, while lowering the consumption of some of the other products until they equate  MU/P ratios of all products once again. The positioning of the demand curve on the Quantity-Price plane is influenced by non-price factors such tastes and preferences, income, prices of related goods, population, seasons and expectations.