Micro and Macro Theory and Application
Micro and Macro Theory and Application.
Average cost is the total cost divided by the output. When there is a small output the average cost will be high due to the fixed costs being spread over a small number of units of output. As the output increases average cost shall fall as each unit is carrying a smaller element of fixed cost. As more resources are employed average cost shall fall for a time as they can be used more efficiently and more specialist methods adopted. As output continues to increase average costs may start to rise due to the wrong combination of resources being used. It can be expected for a firm with fixed capacity; average cost will at first decline but as soon as output
Oligopoly is a market structure in which a few firms dominate the market in terms of sales. An example of this is an industry may consist of 200 firms but 80% of sales are account for by 4 largest firms. There are barriers to entry in oligopolistic markets and firms usually earn supernormal profits in the long run. Describe the main characteristics of this type of market structure Characteristics of an oligopoly industry are: