Question

Define and Illustrate the Following:

A production function showing Increasing returns to Scale

A Long-Run Cost Function showing decreasing returns to Scale

Nash Equilibrium (Construct your Own example)

Cartel –like Oligopoly

Answer 1

A.Increasing returns to scale means that the output increases by more than a proportional change inputs.

B.Decreasing returns to scale means that the change in output is less than proportional change in inputs.More inputs is required to produce additional unit of output.Therefore,the long run average total cost is rising.

Nash equilibrium-It is a game theory concept in which an efficient outcome is determined when no player has an incentive to deviate from his strategy considering the other player's strategy.

Here,5,5 is the optimal outcome.

4.A cartel is an organization or a group formed by an agreement of its members to regulate supply in order to control prices.