Short Answer Type8 units of a good are demanded at a price of Rs. 7 per unit. Price elasticity of demand is (-)1. How many units will be demanded if the price rises to Rs. 8 per unit? Use expenditure approach of price elasticity of demand to answer this question.
Draw average revenue and marginal revenue curves in a single diagram of a firm which can sell more units of a good only by lowering the price of that good. Explain.
When a firm can sell more only by lowering the price the AR curve is downward sloping. When AR is falling, MR must be less than AR. Therefore, MR curve lies below the AR curve.
Explain the implication of 'freedom of entry and exit to the firms' under perfect competition.
Explain the implication of 'perfect knowledge about market' under perfect competition.
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