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Unit 4, Oligopoly market - features, Screenshot 2022-03-31 at 1.25.30 PM,…
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TFC is the overhead cost and it remains constant or fixed whatever be the level
of output. TFC curve is a horizontal line parallel to the x-axis.
TVC is cost due to increased use of variable factors like raw material, labor, etc. TVC is inverse S-shaped starting from the origin due to law of variable
proportion.
TC is aggregate of TFC and TVC. TC curve is inverse S-shaped starting from
the level of fixed cost. The reason behind it shape is the law of variable proportion.
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Average Fixed Cost- It is the total fixed cost divided by the number of units produced. Hence, it is the fixed cost per unit.
AFC= TFC/Q
Average Variable Cost- It is the total variable cost divided by the number of units produced. Hence, it is the variable cost per unit.
AVC= TVC/Q
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Market Structure
Perfect Competition
Theoretical model of a Market structure where all the firms sell Homogenous or Identical products & the firms are Price takers
Monopoly
A market structure characterized by a single seller, selling a unique product in the market
Imperfect competition
Oligopoly
An oligopoly is a market structure in which a market or industry is dominated by a small number of large sellers or producers
Monopolistic Competition
Monopolistic competition characterizes an industry in which many firms offer products or services that are similar (but not perfect) substitutes.
Relationship among ATC, AFC, and AVC
In the beginning, both AVC and AFC curves fall. Hence, the ATC curve falls as well.
Next, the AVC curve starts rising, but the AFC curve is still falling. Hence, the ATC curve continues to fall. This is because, during this phase, the fall in the AFC curve is greater than the rise in the AVC curve.
As the output rises further, the AVC curve rises sharply. This offsets the fall in the AFC curve. Hence, the ATC curve falls initially and then rises.
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