The accelerator model is very similar to the multiplier. The accelerator theory of investments assumes that firms’ output levels from the basis for expectations of future needs for capital. Or investments is assumed to be primarily linked to change in demand for output rather than to a change in interest rates. Firms experiencing an increase in demand will need to increase total capital. If output is growing at a constant rate, firms will also increase their capital spending at a constant rate. Whole an increase in growth will cause firms to increase desired investment levels.
To have a better understanding of this thory lets look at an exapmle...
Assume that a firm producing bottles for the soft drink industry bases expenditure on previous o…
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The accelerator model is very similar to the multiplier. The accelerator theory of investments assumes that firms’ output levels from the basis for expectations of future needs for capital. Or investments is assumed to be primarily linked to change in demand for output rather than to a change in interest rates. Firms experiencing an increase in demand will need to increase total capital. If output is growing at a constant rate, firms will also increase their capital spending at a constant rate. Whole an increase in growth will cause firms to increase desired investment levels.Read more >
It is alright to say that monopolies have a rather poor reputation amongst both us consumers also the political entities we elect to safeguard out interests. Monopolies in fact have number of advantages-sometimes outweighing the disadvantages.As the monopoly restricts output and raises the price, the producer gains at the expenses of the consumers. This loss of consumer sovereignty if the mist noticeable negative effect of monopoly market situations; consumers ‘pay more for less’. Due to the fact it is an monopoly firm the firm will face higher prices and lower output. It follows common sense that a firm whish can affect but not demand will set a price which will optimize profit by a way of increasing the marginal cost and firm’s cost. To… Read more >
So what are collusive and non-collusive oligopoly? Collusion takes on many forms. Setting the price is perhaps the most common method, yet there are many other ways to lower the competitive forces which harm oligopolies’ profits. Most forms of collusion will in any case be convert ( aka secret) rather than overt (aka open). Yet some this type of competition-limiting behavior is illegal since most countries have strict regulations and rules against this type of collusion.
Convert collusion (aka tacit) is when no formalized agreement is set down and forms simply follow each others lead in pricing and output in offer to avoid confrontations. In this case there could be a price leader that the rest will follow, or firms could follow benchmark p…
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- This occurs when the economies of scale are so high that it only make economic sense to have one company.
- Increase in scale results into decrease in average cost.
- In addition, this also mean that this is only a single seller, where it produces 100% of the market output.
- Examples: Public utilies that provides gas, water, electricity, etc...
Traites to look for:
- a single seller
- produces branded to entry
- creates barriers to entry
- maximises profits
Efficiency in Monopoly
- There is only one firm
- The barriers to enter/exit is completely high expense to capital
- There are no other good on the market.
- Examples of this are electric company (X-cel), water company, usually regulated such as the price is determined by government.
1. Monopoly are not allocating efficient 2. However, Monopoly can be productively efficient Allocating things makes price goes up and the quantity decrease. In order to have productively efficiency the marginal cost crosses average total cost at the point of marginal revenue.
- The monopoly will maximise profits where MC = MR
- P > MC : consumers are willing to pay a price higher than it cost to produce the product.
- Q is not at minimum average cost. The monopoly is not efficent. …
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The acclerator is very similar to the multiplier. The accelerator theory of in vestmet assumes that firms past output levels from the basis for expectattions of future needs for capital. in vestment is assumed to primarily lnked to changes in demand for output rather than a a change in interest rates. Firstly, investment expenditure is both highly connected to aggergate demand and also far more volatile than demand changes. Investment changes far more than the change in demand, which serves to increase the fluctuations in a business cycle. Secondly, once output starts to rise, it must contunie to rise at the rate in order fir investment to ramin comstant. Slower growth rate will cause a decline in investment. Whereas a hihger growth ra…Read more >
There are many firms in a P.C. Market.
- Very low barriers to trade
- All products are homengenous.
- 1). allocative efficiency: marginal cost = marginal revenue
- 2). productive efficiency: ATC min.
- 3). Profit Max
- 4). The shaded area is the loss and the gain is the unshaded.
Perfectly Competitive Market
- In this case, we see that perfect competion is far more efficent than a monoply.
- In the long run equilibrium we would have P = Q = AR = MR = D = AC = MC
- This is when PCc market are behaving allocative and productive efficently.
- In addition, something to note is that the MC curve is the firm's supply curve . In the short run, this extends down towards the AVC curv. In the short run, mostly all firms would stay in business as long as they are making enough to …
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