Fully Explain each of these terms with an example DansbyWill

Fully Explain each of these terms with an example..?

Dansby-Willig Performance Index

horizontal merger

Herfindahl-Hirschman Index (HHI)

Perfect competition

brand myopic

diseconomies of scale

inverse demand function

incentive contracts

average variable cost

law of diminishing returns

Solution

(1) Dansby-Willig Performance Index- It is a measure of improvement in social welfare if output of all firms in an industry increases in a socially efficient way.

Social welfare=consumer surplus+producer surplus

For example-If monopoly business would be converted in Perfect competition say by some govt intervention, it expands output of industry and Index would be then greater than zero.

(2) HORIZONTAL MERGER- Merger between two or more firms that produce and sell same product when they faces competition in market.Firms merge in order to lower costs and increase efficiency.For example-Mc Donalds and Burger king can merge to reduce competiton and increase profit.

(3) HHI- It is a measure of market conecentration and measures size of firm in relation to industry.It is calculated by summing squares of shares of each firm in the industry.For example-there are 3 firms with shares 50,20,30 percent.HHI=50²+20²+30²=3800.HHI ranges from 0 to 10,000.

(4) Perfect competition-When no firm in the market has market power to alter the price of good,and all firms faces same price of that good ,where good is homogeneous in nature.And there is free entry and exit in this market.For example-

Pen producers are also considered to be a part of a perfectly competitive market. Their products are homogeneous in nature, and they are priced accordingly.