Diseconomies of scale occur when long-run average costs start to rise with increased output. Economies of scale occur up to Q1. After output Q1, long-run average costs start to rise. Reasons for dis-economies of scale Poor communication in a large firm. It can be hard to communicate ideas and new working practices. Alienation: Working in …
Oligopoly is a market structure in which a few firms dominate the industry; it is an industry with a five firm concentration ratio of greater than 50%. In Oligopoly, firms are interdependent; this means their decisions (price and output) depend upon how the other firms behave: Barriers to entry are likely to be a feature …
Readers Question: Why do monopolies occur in industries with substantial economies of scale? Question: As a result of large-scale production, the long-run average cost of production falls. This means that a monopoly can emerge in time naturally because of the relationship between average cost and the scale of an operation (Why? I don’t understand) The …
Readers Question: Is it better to sell more services/products with less profit, than sell less with high profits? What are the pros and cons to the employer, worker, and customer? i.e. high revenue low profit, vs low revenue high profit? Classical economic theory suggests firms will seek to maximise profits. The benefits of maximising profit …
New Keynesianism refers to a branch of Keynesian economics which places greater stress on microeconomic foundations to explain macro-economic disequilibrium. A key element of new Keynesianism is the role of wage rigidities and price rigidities to explain the persistence of unemployment and macro economic disequilibrium. New Keynesianism combines elements of traditional Keynesianism (sometimes referred to …
Back in the summer of 2010, Apple launched the iPad. It was launched to great excitement and it seems the initial euphoria was well placed. From sales of zero at the start of 2010, the tablet market has expanded to over 100 million units a year as we come towards the end of 2013. Sales …
A merger will lead to a bigger firm and a greater market concentration. This can have both advantages and disadvantages for the public interest. A merger is likely to reduce competition and give the new firm more market power. Therefore, it will be able to increase prices leading to a decline in consumer surplus and …
This is a policy of setting prices close to average cost. It is a way to maximise sales, whilst maintaining normal profits. It is sometimes known as sales maximisation. It will be used by firms who are seeking to increase market share and who don’t seek to maximise profits. Average cost pricing will occur in …