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.
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.
All the buyers and sellers operating under perfect competition have perfect knowledge of the market conditions. Perfect knowledge means that both buyers and sellers are fully informed about the market price. For example, every seller knows the total quantity supplied and sold on a particular day or during a week. Similarly, no firm is in a position to charge a different price and no buyer will pay a higher price. As a result a uniform price prevails in the market.
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