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Write in full the label (not abbreviation) for each of the lines numbered 1 to 3 - Leaving Cert Economics - Question 9 - 2020
Question 9
Write in full the label (not abbreviation) for each of the lines numbered 1 to 3. Use the answer box provided. Price Number Label 1 2 3 Show on the diagram th... show full transcript
Worked Solution & Example Answer:Write in full the label (not abbreviation) for each of the lines numbered 1 to 3 - Leaving Cert Economics - Question 9 - 2020
Step 1
Step 2
Show on the diagram the equilibrium point (E); the price charged (P1) and the quantity produced (Q1) by this firm.
Answer
On the diagram, the equilibrium point (E) is where the Marginal Cost (MC) intersects the Marginal Revenue (MR) curve. The price charged (P1) is represented by the price at which the quantity produced (Q1) is found. Specifically, you will denote:
- E at the intersection
- P1 at the y-axis corresponding to E
- Q1 at the x-axis corresponding to E.
Step 3
With reference to the diagram explain the term price rigidity.
Answer
Price rigidity in the context of the diagram refers to the tendency of prices to remain stable despite changes in the market conditions. This occurs because the firm is cautious about altering its price (P1) as it could affect its market position. The firm prefers to maintain its price to avoid potentially losing customers to competitors. Consequently, even if the costs change or demand fluctuates, the firm is likely to keep the price constant, illustrating its fear of the reaction from its rivals.