Contents. Concepts of Revenue I-13. About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11

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1 Contents About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11 1 Concepts of Revenue 1.1 Introduction Concepts of Revenue Revenue curves under perfect competition Revenue curves under Monopoly Revenue curves under Monopolistic Competition Revenue curves under oligopoly 11 CHAPTER IN BRIEF 13 Formulas to remember 14 REVIEW QUESTIONS 14 2 PRICE ELASTICITY OF DEMAND 2.1 Meaning of demand Law of Demand Why study Price elasticity of demand Concept of price elasticity of demand 21 I-13

2 Contents I Sign of the elasticity estimate Problems in the concept of elasticity of demand Slope and price elasticity of demand Types of elasticity of demand Factors affecting price elasticity of demand Measuring price elasticity of demand Relationship between Revenue and price elasticity of demand Importance of price elasticity of demand 47 Chapter in Brief 48 Formulas To Remember 51 REVIEW QUESTIONS 52 Annex 2.1: Classification of Goods on the basis of Income 55 3 INCOME AND CROSS ELASTICITY OF DEMAND 3.1 Introduction Concept of Income Elasticity of Demand Types of Income Elasticity of Demand Importance of Income Elasticity of Demand Concept of Cross Elasticity Types of Cross Elasticity of Demand Importance of Cross Elasticity of Demand 69 Chapter in Brief 70 Formulas To Remember 71 REVIEW QUESTIONS 72 4 Indifference curve Analysis 4.1 Introduction Concept of indifference curve Marginal rate of substitution Assumptions of indifference curve Indifference map Properties of indifference curve Exceptional shapes of indifference curve 85

3 I-15 Contents 4.8 Budget line Consumer s equilibrium 94 CHAPTER IN BRIEF 98 FORMULAS TO REMEMBER 100 REVIEW QUESTIONS INDIFFERENCE CURVE ANALYSIS: PRICE, INCOME AND SUBSTITUTION EFFECTS 5.1 Introduction Price consumption Curve Shape of PCC and price elasticity of demand Income Consumption Curve ICC and income elasticity ICC and nature of products Engel curve Substitution effect Decomposition of price effect 126 Chapter in Brief 131 FORMULAS TO REMEMBER 133 REVIEW QUESTIONS Theory of Production 6.1 Introduction Production function Short run production concepts Law of variable proportions Concept of isoquant Characteristics of an isoquant Marginal Rate of Technical Substitution (MRTS) Isoquant map Economic region of production Exceptional types of isoquants 150

4 Contents I Iso-cost line Equilibrium of a producer Expansion path Laws of returns to scale Returns to factor and returns to scale Economies and diseconomies of scale 174 CHAPTER IN BRIEF 182 FORMULAS TO REMEMBER 186 REVIEW QUESTIONS COST CURVES IN SHORT RUN 7.1 Introduction Alternative cost concepts Cost curves in short run Total fixed cost (TFC) Total variable cost (TVC) Total cost (TC) Average fixed costs (AFC) Average variable cost Average cost (AC) Marginal cost Relationship between different cost curves 210 CHAPTER IN BRIEF 212 Formulas to remember 214 REVIEW QUESTIONS COST CURVES IN LONG RUN 8.1 Introduction Long run cost curves Long run total cost curve Long run average cost curve Long run marginal cost curve 224 Chapter in Brief 226

5 I-17 Contents Formulas To Remember 227 REVIEW QUESTIONS Theory of Perfect Competition 9.1 Introduction Definition and Assumptions Perfect and pure competition Equilibrium under perfect competition Conditions of Equilibrium Short run equilibrium of a firm: TR-TC method Short run equilibrium of a firm: MR-MC method Short run equilibrium of Industry Supply curve of industry Supply curve of Industry and time horizon Completely inelastic supply: A very short period Short run equilibrium of industry and firm Long run equilibrium of industry and firm Long run supply curve and firm s equilibrium Price determination in long run Producer s surplus of a firm Producer s surplus of an industry Producer surplus and profit 257 CHAPTER IN BRIEF 258 FORMULAS TO REMEMBER 261 REVIEW QUESTIONS MONOPOLY 10.1 Defining monopoly Characteristics of monopoly Pure, simple and discriminatory monopoly Entry barriers under monopoly Equilibrium under monopoly Shifts in demand curve and absence of the supply curve 274

6 Contents I Monopoly power and its measurement Monopoly vs. perfect competition Social costs of monopoly power Price discrimination Horizontal and vertical integration 288 Chapter in Brief 289 FORMULAS TO REMEMBER 289B REVIEW QUESTIONS 289C 11 MONOPOLISTIC COMPETITION 11.1 Introduction Characteristics of monopolistic competition Demand curve under a monopolistic market Selling Costs Firm s equilibrium under monopolistic competition Excess capacity theorem Monopolistic Competition and Economic Efficiency Comparison of monopolistic competition and perfect competition 299 CHAPTER IN BRIEF 300 REVIEW QUESTIONS OLIGOPOLY 12.1 Meaning of Oligopoly Characteristics of Oligopoly Barriers to entry Types of Oligopoly Cournot s Duopoly model Kinked demand curve and price determination Price leadership Model Centralized cartels Prisoner s Dilemma 320 CHAPTER IN BRIEF 322 REVIEW QUESTIONS 324