÷ .

0
 :

:
 one fixed cost is the rickshaw rental change paid by the drivers who vent their

cost payment for fuel order to operate

vehicles . One variable is they use in

their vivllsnnw .

I
1
Law of diminishing returns state that , as the rickshaw manufacturer

adds increasing amounts of a vrriable input tailors such as labour to a

set of fixed factors , the marginal output of firm will at first increase until

it hauls maximum
'

Then , as the
quantity of labour increase further ,

held constant will start to fall

while 04hm Fops still the marginal output
.

are ,
 output of rickshaw manufacturer may results
in
The
expansion in a

hignw average cost of production .

firms Auto difficult for

expansion of large Bajaj
The such as becomes more

the management to monitor the work of their employees as closely as

previously
.

The productivity wnld tall as it become more difficult to coordinate all

costs and average

aspects of production Hence Bajaj Anto could incur extra
-

cost of producing a rickshaw could increases -

Uowww ,
-

disavow mins of swale is not certain to aww . In fact , a smaller

firm can
gain 805 when it expands .
This could result in
decreasing average cost

as it produces more bilk Shaws '

saving
firm relation
really depends operating
In wnvinsion , it where the is in

to its own minimum efficient swale . IMES ) .

It is possible that a
large -
scale

rickshaw manntavtnrnv Subhas Bajaj Auto will have large fixed wsts ,

the
expansion could result in further €0S within its MES range
.

meaning

Barriers factors that it difficult for new firms to

to
entry are make more

market petition the

The greater barriers to
entry the in
enter the less win
.

a ,

market .

The larger existing man

nfautnring firms such as
Bajaj Auto and Piaggio

of and correspondingly
would be exported to have aunierved significant economies scale

host of production entrants would find it

how
average hence potential market
•

difficult and to enter the market This is

to compete price less likely
.

on

case it incumbent firms adopt strategy

especially the the a

of limit of predatory pricing

.

A suvond issue is that of legal barriers

.

This involves the need to meet safety

criteria that ensure rickshaws produced will meet the regulation of the Indian

authorities Some firms not be able to afford the host of meeting standards ,

may
.

resulting less competitive market

.

in
✓

nhonopolistiv competition is a market ◦ ✓ industry where there is competition

similar
between large number of firms which pwdnve prod nits that are

the of brand images

'

There need to
but differentiated
use
i
usually through

be how bairns to entry and exit ,

and some product differentiation through profit

maximising suppliers
.

who all offer

There Are
many profit
✓
maximising rishaw drivers a
very
concentration rate
.

and is low
similar survive .
This means competition is high

market structure in which there are few large firms competing

An is
oligopoly a

controlled
percentage of market by a
with each other .
lonuentvation ratio is the a

number of firms -

The convent ration ratio of the largest firm is

usually
given

high
-

very

for market
The three firm concentration ratio
-
the rickshaw manufacturing in

It and wnsistent with market dominance of

India is 92.1° to .
is relatively high

by significant
thwart revised barriers to
fuw large firms
'

besides , it is also

for example the considerable sunk wsts associated with setting

entry , ,

in vanillin manufacture
up
.

wndition of prod nut differentiation and won

-

price
It also
satisfy the

benefits of
competition .
Non -

price competition
is such as promoting the using

for example its wmfovt or the Inuk of environmental damage

their rickshaw .

fuel system
-

caused by its
 The rickshaw
manufacturing market in India could be classed as an

for market
Thu three firm concentration ratio the rickshaw manufacturing in
oligopoly
. -

demand of
91.1° to Diagram the kinked oligopoly
'

India is .
below show vnvve an

Price / lost 1 revenue

^ A profit maximising fium such as Bajaj Arto will
HMU
I

operate wnnvu Mv : Mr . This win pwdnlb an equilibrium

p - - - -
- - - -
i

I AYU
'
output at Q and P .

At the
profit maximising
,
" will
,
level of output , the marginal cost be MY
Av -1
- - -
- -
- -

-
i
-

results in anova five

- - -

NIC
- -

; This is www than price i

1
AR
i
° 7 am antity
inefficiency
_

a Mr

not at the of All

Productive efficiency not achieved as the Q is minimum -

is

Thu supernormal profits earned

by firms such as Bajaj Anto and Piaggio mean they are able

to invest and develop a more affordable and efficient rickshaws rather than compete on

pvivb
-

this means that AE and PE would improved in long run as the improved n' v11 Shaws that

consumer wants are provided and their average wst falls -

A contestable market i} one in which there are no navvies to

entry
or exit and the incumbent firms can
only
make normal profit .

The rickshaw is

to
an untestable because
any potential rickshaw driver has right
to
avquire an
appropriate vehicle and
apply for an
operator 's licence

work in the market .

Potential drivers that hire their vehicle

greatly reduces the initial cost

degree of
the market avtnal and potential petition keeps the
untiring
.
The win

profits than
they otherwise might be
price and www
-

not obtaining operator's

homerun ,
theres possibility of a
potential driver an

rental
license ,
Also . if a
potential driver on not access to a vehicle agreement
therefore there relatively high start cost even with the
then up
-
are ,

cost
government 's financial incentives This create
potentially sunk
. .

It appears that the rickshaw taxi hive market has limited

contest ability -
 An increase in
competition from new entrants into the renew arable

Margy market win lead to redirect market shave and demand for incumbent firms ,

as
supply in the
industry increases .
This will www the profit -
maximising price .

and 4h1 firms will want

The
great W competition www prices will mean to lower
•

this ✓
average roost . and closer to marginal lost , in order to avhiuwu greater production

efficiency -

Ahovatwu efficiency owns when the firms margin g tha price of product
to host of In order to
taunts marginal producing unlivable
energy
.

survive in the competitive market , firms needs to produce move

pwdhuts

that demand allocation efficiency

.

consumers .
leading to
greater
The inuhlased in
competition would also leads to
gain in dynamite efficiency .

Firms need to do more research and development in order to invest a more innovative

products or efficient production process This will also wad to greater future
.

more

anouative and
productive efficiency
.

www.ww ,
there could be a possible loss of dynamite efficiency in
long

run as a result from the loss of long run supernormal profits due to increased

competition
'

this would cause less in investment and development and cause a

loss in future allouativb and productive efficiency .

We mweraserd competition may results m firm trying to int costs and

henne
compromising health and safety standards , thus
creating negative

externalities
-

This would winter misallocation of resumes i with the firm operating

at inefficient capacity levels in the pursuit of greater profit ,
musing more

pollution
_

In wnvwsioni the extent to whether third will be

gain
or boss

m
efficiency in the renewable energy sector would depend on the

'

Stehle of move abed competition

 A product market refer to situation whereby one
monopoly provider in a a

dominant firm i.
only seller
in that market . A monopoly fiumaivn.to maximise

with
profit profit at
The will Mv MR
be
maximising
:
.

costs ,
revenue
Mu
^
an output of Qm and a
price of Pm
.
This

inefficiency
AC
will causes allow alive and productive
.

Pm -
- -
-
-
-

i
supernormal ,
This because of the absence of a
competitive
% i
Alm -
- - - -

i
Au the
'

@
incentive to produce at Min ,

monopoly
I
AR
1
MR
of Acm
Quantity average cost
"
with
actually
.

O > win an
am

and below
the result is that equilibrium marginal lost its below
equilibrium price

average host anvoatiue and productive inefficiency

_

which results
the equilibrium in
,

The lark of computation incentives can lend to

organisational slack

and ✗ -
inefficiency
.

This is due to the lark of motivation ,

and management

and communication the large scale of firm This inn

problems arms }
.
eventually causes dibuono mics of scales as the
average cost of production vises ;

leading to greater inefficiency .

A natural industry there substantial

monopoly ouvnus in an where are

of that firm
ironomies scale
only
one is viable in the
industry .
In this case ,

supernormal profits gained could be used to invest in research and development .

Dynamite efficiency move ases .

The production process and products will improve such that it

for monopolist to induce its price to marginal cost and the

is
possible closer ,

average cost also closer to

marginal wst and therefore the
i

industry will move

towards allocation and productive efficiency .

The
monopolist also
subject to the govern anon of
may
be a
regulator
that avqnives price to be set close ou
equal to wnrginal cost .
For example ,

thus
leading to allocation inefficiency .

This would create difficulties for

the natural monopolist .