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1. Question 1 The short run is when at least one factor of production is in fixed supply. The law of diminishing marginal returns is a law, which state that if one factor of production is increase while other factors are in a fixed number like capital, change in total output will first rise and then fall. This law can impact the marginal cost, which is the change in total costs from increasing output by one extra unit. The formula for MC is 'change in total cost divided by change in quantity’. Therefore if the variable unit of production is increased, there comes a point where it will become less productive and therefore there will eventually be a decreasing marginal and then average total cost. That means that the MC falls due to…show more content…
Moreover the structure of the six larger suppliers is characterized by a high degree of vertical integration between generation and supply that could possibly weaken competition. Furthermore the suppliers decide whether to increase or decrease their prices relating to the raise or fall of cost. Moreover their oligopolistic manner caused a lack of market competition, prices are rising and energy company profits are growing despite a sharp fall in the wholesale cost of Energy. 5. Question 5 Perfect competition where there are very many firms competing. In order that a market is like so there are some characteristics that the market should possess. First of all there must be many buyers and sellers and none of them can be large enough to have any influence over the market price, which means no oligopolies or monopolies. Moreover there must be no barriers to entry in order that firms must have complete freedom of entry and exit. Furthermore the goods being sold must be homogenous in nature, which means that the product has similar characteristics and quality of the competitor product. Moreover another characteristic of the perfect competition market is Perfect information, which means every firm as a good knowledge of the market. Therefore, if a firm is able to make supernormal profits, which is any profit above normal profit, other firms will be aware of this fact. Because there are no barriers to entry, firms will be encouraged

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