Economics And Econometrics

Broadly markets are of three types as follows: 1. Perfectly competitive market 2.Monopoly market 3.Monopolistic competitive market 1.Revenue curve under perfectly competitive market or Perfect competition: Under perfect competition, a firm is a price taker. It cannot influence /change the market price. AR and MR curve 2. Revenue Curve Under Monopoly: A monopolist is a price maker. He is the single seller of the product in the market. Under monopoly, however, if a firm desires to sell more , he has to reduce price of the product. Thus, there is  negative relationship  between price of the product na ddemand for the product in a monopoly market. Accordingly, a Firm’s AR curve (or the demand curve or the priice line) slopes downaward.  3. Revenue Curve Under Monopolistic Competition: In a Monopolistic Competitive market, producers sell “differentiated product” which means products whose close substitutes are easily available in the market. Under Monopolistic Compet...

  CONCEPT OF REVENUE Definition: The revenue of a firm is its sale receipts or money receipts from the sale of a product. Revenue is estimated in different ways as: 1. Total Revenue                   2. Marginal Revenue              3. Average Revenue 1. Total Revenue: Total money receipt of a firm from the sale of a given output is called total revenue.   Total Revenue = Price of the output × total quantity of output sold TR = P × Q 2. Marginal Revenue : Marginal Revenue is the change in total revenue when one more unit of a commodity is sold. Also, sum total of MR corresponding to ech unit of output is equal to TR.  MR= TR n - TR n-1                   OR              Marginal Rev...

Marginal Cost (MC) Definition : According to  Ferguson,  Marginal Cost   is the addition to the total cost due to addition of one unit of output. In other words, Marginal Cost is the change in total cost when an additional unit of output is produced. MC n = TC n  ─ TC n-1                       OR                      MC  = Change in total cost/ Quantity    Total Cost Total cost is the sum total of fixed cost and variable cost. With increase in output, total cost also increases. Average Cost Average Cost is the cost per unit of output.       AC = TC/Q Also, Average cost is the sum total of average fixed cost and average variable cost. i.e.        Average Cost (AC) = Average Fixed Cost (AFC) + Average Variable Cost (AVC)        AFC curve is rectangular hype...

Short Run is period of time during which some factors are fixed and some are variable. Accordingly, Short Run Costs have the following two components: (i)  Fixed Costs that refers to expenditure on fixed factors of production (ii) Variable Costs which refers to expenditure on variable factors. Therefore,   Total Cost (TC) = Total Fixed Cost (TFC) +Total Variable Cost (TVC) I. Fixed Costs Fixed costs are the costs related to the use of fixed factors of production. They are also called Supplementary costs or Overhead costs or Indirect costs. These costs do not change with the change in output. These are constant costs. These are incurred even when output is Zero. Principal Components of Fixed costs are:   (i) Expenditure on machine and plants (ii) Expenditure on land and building (iii) License fee (iv) Wages and Salaries of permanent staff Total Fixed Costs Curve II. Variable Costs Variable costs are those costs which are related to the use of variable factors. ...

  For producing output, inputs are required. Broadly, there are two types of inputs: (i) Factor inputs such as land, Labour, capital and entrepreneurship. (ii) Non-factor Inputs such as raw material, transportation.     Cost: (Definition): Cost refers to the expenditure incurred by a producer (explicitly or implicitly) on the factor as well as non-factor inputs for a given output of commodity. Explicit Cost: Expenditure incurred by a producer on the purchase of inputs from the market is called explicit cost. Example: expenditure on factor inputs and non-factor Inputs bought from the market.   Implicit Cost: Estimated expenditure on the use of self-owned inputs is called implicit cost. Total Cost= Explicit cost + Implicit cost Selling Cost and Production Cost Selling Cost: Selling cost refers to the expenditure incurred by the producer to promote sale of the commodity. Example: expenditure on advertisements etc.  Production ...

Law of Variable Proportions states that as more and more of the variable factor is combined with the fixed factor, marginal product of the variable factor may initially rise, but eventually a situation must come when marginal product of the variable factor starts declining. Marginal Product may ultimately become zero or even negative. The Law of variable proportion is based on certain assumptions. These are as follows: (i) Ratio in which factors of production are combined can be changed. (ii) Units of variable factor are homogenous or equally efficient and are increased one by one. (iii) State of Technology does not change.  Three Stages of Production Law of Variable proportion suggests three stages of production (also called three phases of production) as follows: Stage I- Stage of Increasing Returns : When MP is increasing and TP is increasing at an increasing rate. Stage II- Stage of Diminishing Returns : When MP is diminishing and TP is increasing at a decreasing rate. ...

  Production Function and Returns to a Factor T here are four factors of production: Land, Labour, Capital and Entrepreneurship. For contributing their factor services, factor payments for the four factors of productions are as follows: Rent (land), wages and salaries (Labour), Interest (capital) and Profit (entrepreneurship).   I. Production Function: Production function is the function relationship between physical inputs and physical output of a commodity for a given technology. It is purely a technical relationship. Production function is expressed in terms of the following equation: Q X = f (L, K) For example, if physical inputs (say 10 units of capital and 5 units of labor) are required to produce physical output(say 100 units of the commodity), the production function for the same will be written as : 100 X = f(5L, 10K). II. Fixed Factors and Variable Factors Factors of productions are classified as: (i) Fixed factors (ii) Variable Factors. (i) ...