Assignment (Microeconomics) Example | Topics and Well Written Essays - 500 words - 3

(Microeconomics) - Assignment Example It also assists government to take advantages of expenses associated with clerical works. Moreover, government can effectively avert unhealthy market competitions. 3. Utilities such as water, gas, and electricity are some of the examples of natural monopolies. Government must set price ceilings in national monopoly markets since products and services under this category are necessities that people may buy at any higher prices. 4. In both the cases, profit must be zero in long run equilibrium. Firms are affected by changes in demand conditions under both cases. A major similarity between monopolistic competition and perfect competition is that competition in pursuit of profit encourages efficient resource movements. 5. In the case of a monopolistically competitive firm, demand will increase and average cost will increase in the long run. Under such circumstance, monopolistically competitive firms end up making zero economic profits. 6. A monopolistically competitive firm chooses the level of output where marginal cost equals marginal revenue. The firm maximizes its profits so as to achieve this situation; and it is called short run equilibrium of the firm. This condition adds to the price fixation flexibility of the firm. Moreover, it enables the firm to rapidly adjust with unexpected market fluctuations. b. Availability of different varieties of breakfast cereals gives an opportunity for consumers to distinguish them on the ground of their quality and price. It also gives consumers chance to buy their most preferred