Question

1.  What is the difference between the short run and the long run? Explain the  

     Law of Diminishing Marginal returns.

2.  Discuss the difference between the market demand curve of a purely

     competitive industry and the demand curve confronted by an individual

     firm in pure competition.

3.  What is a monopolist, and what is required for a monopolist to earn profits

     in the long run?

4.  What does the demand curve facing a monopoly look like?Why?

5.  What is the Law of Diminishing Marginal Utility and how does it relate to

    The Law of Demand?

6.  What is the social cost of a monopoly? Explain.

Answer 1

1. The difference between short run and the long run is, short run is a period of time in which factors can be both fixed and variable. But long run is a period of time in which there are no fixed factors of production. All factors are variable in long run.

In short run, it is not possible for firms to increase its plants and machinery to increase its production level. But in long run firms get enough time to install new plants and machinery and increase its production level.

• Law of diminishing marginal returns state that at some point, adding an additional variable factors of production while all the fixed factor of production remain constant, results in decrease in marginal output of a production.