Assignment No 3 Subject Microeconomics Submitted By Muhammad Awais Roll No 13669 [Sys ID: NUML-S20-11149] Submitted To Mrs, Shazia Parveen BBA 2 Years 2"! Semester (Morning)Q. Explain in detail the special cases of competitive market. 1. Economic Rent (Fixed supply) Economic rent is the revenue that can be earned from the land or other natural resource for which there is a fixed supply as economists like to say, the supply is perfectly inelastic Because the supply is perfectly inelastic, the amount of its supply does not depend on any income that the resource can produce. Increased demand does not increase the supply because it is a natural product that was always available, Hence, it is a free gift to society. Graph: Explanation: The quantity supplied which is fixed is on X axis, And the price of that is on Y axis. When the demand increases from the D1 to D2 its price also increases from P1 to P2 while the supply is fixed.Backward-Sloping Supply Curve of Labor: But the supply curve of labor is not always upward sloping. When an individual prefers leisure to income, then the supply of labor (number of hours worked) by an individual will decrease as the wage rate rises, This is because in such a case income effect which tends to reduce the work effort outweighs the substitution effect which tends to increase the work effort. Graph Explanatio In Graph 1 an indifference map along with a set of wage lines W1, W2, W3 and W4 (showing Wage rates P1, P2, P3, Pé respectively) are shown. As the wage rate rises to P2 and hence the Wage line shifts to W2 the number of hours worked by the individual per week increases but when the wage rate further rises toP3 and P4 and hence the wage line shifts to W3 and W4, the number of hours worked by the individual decreases. From Graph 2 it will be explicitly seen that the supply curve of labor slopes upward to the wage rate P2 (that is, point K) and beyond that it slopes backward.Increasing Cost: The primary reason for an increasing-cost industry is that an increase in demand triggers higher production cost and an upward shift of the long-run average cost curve as new firms entering the industry bid up the prices of Key resources, The entry of new firms into the software industry might, for ‘example, bid up the wages paid to computer programmers, The entry of new firms into the home construction industry might bid up the price of lumber. Graph: Explanatior Quantity is on X axis and price is on ¥ axis, When quantity demanded increased from Qi to Q2 its price increases from P1 to P2. And demand curve shifts from D1 to D2. The graph shows that higher demand will increase the price of this good even in the long run with identical firms and free entry and exit.Constant-Cost: Constant-cost industry refers to an industry where input prices do not change when industrial output changes. One reason is industry demand for input resources only covers a small portion of the total demand for these resources, Constant costs also occur when an increase in demand does not affect production costs. Examples of Constant-Cost Industries: Examples of constant-cost industries are the pencil industry. As more companies enter the pencil industry, the demand for wood to produce pencils increases. However, because the pencil industry covers a smalll portion of wood demand, the price of timber is unchanged. Graph: Explanation: Quantity demanded is on x axis and price of commodity is on y axis. In constant-cost industry supply remains constant and also the price remains constant even when the demand is increased, So, price remains constant and quantity demanded increases from Q1 to Q2 and demand curve also shifts from D1 to D2.