Question

I want to apply demand, supply, demand elasticity,short run and long run change, the low of diminishing returns ,pricing and output decisions in perfect competition and monopoly or monopolistic competition or oligopoly in project of evaporated filled milk new product line.

Answer 1

Let us consider evaporated filled milk industry as oligopoly market in short run equilibrium.

1. Let us assume due to an adverse supply shock because of huge environmental damage the supply of milk falls below its original supply.
2. As results the aggregate supply falls below its aggregate demand.
3. Hnece the prices shoot substantially in short run.
4. Thus aggregate consumption falls which means sudden change in pruces leads to lower demand in consumption and hence is demand elastic product.
5. However in the long run prices restore and come back to original prices onve the supply builds up.
6. Now firms tend to produce more and more boost supply and as results achieve economies of scale and thus brings down prices.
7. However if the production scale reaches beyond the threshold point it starts generating negative returns and thus additional investment leads to what we call as law of diminishing returns.
8. Hence in an Oligopolistic market output stabilises in long run to maintain profitability and equilibrium in market.