the pointers written below are a mix of my lecture notetaking and personal opinions. i believe there are many ways to interpret the events of the play and the intentions of the characters. this is not absolute, so take it with a pinch of salt. i hope that this is a worthy supplement to your revision. literature is a killer for me as it's an alien discipline. but it doesn't stop me from loving what i study. all the best with your lit journey :-)
Covering...
- General Outline
- Major Themes + General Claims
- Character Outlines
- Significant Scenes/Quotes
Time Frame: 1947, 2 years after WW2
August: High point of Summer, before the arrival of FALL; demise of Keller
Physical Setting:
Act I - Sunday Morning
Act II - Sunday Evening
Act III - Monday 2am
Sunday: A rest day. (consider: sunday christians - claim to be religious but act immorally)
- The progressive physical directions in ominous, signalling downfall.
Themes
- The Personal against The Universal
The Family against All + Humanity (consider: is Keller interested in protecting Family or Humanity?)
- Self Interest against Social Responsibility (consider: do they coexist or can they exist independently?)
- Materialism against Morality/Virtue (consider: sue/joe vs chris/larry)
- Capitalism (consider: what does war advocate?)
- Practicality against Naivete/Idealism (consider: between which characters?)
- Pragmatism (consider: who exhibits it and in what form?)
- Law and Justice (consider: culpability vs responsibility, has justice been served?, what is necessary for forgiveness?)
Nomenclature:
Keller Family as The Holy Family
Joe Keller - Joseph, Jesus's Earthly Father OR Average Joe
Kate Keller/Mother - Mother Mary
Chris Keller - Christ (does chris really exhibit christlike values? do people think he exhibits them?)
Characters
Joe Keller - Comes across as likeable and friendly (consider: how to the neighbours really feel about it), willing to threaten/bully others to get his way (consider: what/who is he doing things for?), greedy and selfish, pragmatist (prioritizes money and family), lacks an understanding of his responsibility to the society.
Kate Keller/Mother - Ruling power of the family, manipulative/calculative, controlling, motherly side (consider: how she treats george), delusional/superstitious
Chris Keller - Believes in social responsibility, desires for a larger life outside of the Keller business (consider: does he take into account the practical side to 'having a good life'), has a sense of ethical righteousness, idealistic, uncertain about Joe's role in the shop incident
Ann Deever - Principle overrules familial relations (consider: opposite of joe?), places greater value on her own life than a principled concept of justice, idealistic without using brains, naive (yet she has an idea of what she wants = a life with Chris), lacks individuality or is she independent, staunch believer in Chris, holds the truth, non-confrontational
George Deever - prioritizes saving Ann over revenge at Joe, scarred by war (more than Chris), believer in Chris, easy manipulated/distracted, impulsive
Sue Bayliss - pragmatic (prioritizes financial gain), little emphasis on caring for family, has a COMPLETE grip on reality, insecure, confrontational (consider: does she always actively seek the truth?), aware of Joe's guilt
Jim Bayliss - has ideals but abandons them for family (consider: he has the same choices as chris. do they compromise the same things?), repressed, cynical (consider: possibly due to his failed idealism) inadequate (consider: this is thrown into sharper focus in the way he views chris as a war hero/man of noble principles), treats wealthy patients (consider: he is similar to joe in the way that he puts familial responsibility before social responsibility), aware of Joe's guilt
Lydia Lubey - laughs easily (consider: is her laughter a veneer?), longtime girlfriend of George (consider: what do they remind each other of? has she settled for less than the ideal - frank?)
Frank Lubey - idealist/naive, superstitious (consider: significance of a character that believes in fate & stars), convinced that Larry may be alive
Monday 29 August 2016
[Literature Paper 1] Opening of Act I - All My Sons
my head is pretty muddled up from the confusing lectures and messy notes (of my own) on this piece of fine work by arthur miller. all credit for the notes below goes to my lit lecturers.
before we begin, just some general notes on the beginning of this incredible, tear-jerking play.
- The 'idyllic' suburban American neighbourhood presents the venue of an ordinary, normal, peaceful family life.
The back yard of the Keller home in the outskirts of an American town.
before we begin, just some general notes on the beginning of this incredible, tear-jerking play.
- The 'idyllic' suburban American neighbourhood presents the venue of an ordinary, normal, peaceful family life.
The back yard of the Keller home in the outskirts of an American town.
- Half-public, half-private environment which establishes the family unit as a microcosm of society.
At the right, beside the house, the entrance of the driveway can be seen, but the poplars cut off view of its continuation downstage.
Garden chairs and a table are scattered about.
On the rise: It is early Sunday morning.
A man among men.
August of our era.
- Referring to the crucial event (selling of cracked cylinder heads) that sparked the moral issue central to the unfolding drama.
The stage is hedged on right and left by tall, closely planted poplars which lend the yard a secluded atmosphere.
- Seems to suggest the anti-social act committed by Keller
The stage is hedged on right and left by tall, closely planted poplars which lend the yard a secluded atmosphere.
- Seems to suggest the anti-social act committed by Keller
- However, one cannot escape into the family from social consequences of one's actions.
Upstage is filled with the back of the house and its open, unroofed porch which extends into the yard some six feet. The house is two stories high and has seven rooms.
Upstage is filled with the back of the house and its open, unroofed porch which extends into the yard some six feet. The house is two stories high and has seven rooms.
- Relatively affluent middle-class family
It would have cost perhaps fifteen thousand in the early twenties when it was built.
- Importance of Money is foregrounded into the description of the Keller home.
It would have cost perhaps fifteen thousand in the early twenties when it was built.
- Importance of Money is foregrounded into the description of the Keller home.
- Makes reference to Keller's monetary gain in spite of the war; no illicit consequences of his actions.
Now it is nicely painted, looks tight and comfortable, and the yard is green with sod,
Now it is nicely painted, looks tight and comfortable, and the yard is green with sod,
- Speaks of a facade (you may consider who puts them up in the play)
- Superficial exterior of attractiveness
Here and there plants whose season is gone.
Here and there plants whose season is gone.
- Pass their prime --> Reference to the idea that Keller's glory days are long past him.
At the right, beside the house, the entrance of the driveway can be seen, but the poplars cut off view of its continuation downstage.
- Refers to Keller's myopia and dissociation from the rest of the society.
In the left corner, downstage, stands the four-foot high stump of a slender apple tree whose upper trunk and branches lie toppled beside it, fruit still clinging to it branches.
In the left corner, downstage, stands the four-foot high stump of a slender apple tree whose upper trunk and branches lie toppled beside it, fruit still clinging to it branches.
- Reflects a sense of dogged persistence in clinging on to the past.
- Slender: It's not an old tree. If Larry hadn't died, he would have married Ann and bore children. (consider: premature death)
- Stump: In memory of Larry; not allowed to be officially dead, in Mother's eyes.
- Fall of the tree is a result of a storm // The storm that rips apart the family when Keller's crimes and Larry's letter come to light. It is the winds of change with alter the fortunes of the Keller family; the wind that brings about revelations and downfalls.
Downstage right is a small, trellised arbor, shaped like a sea shell, with a decorative bulb hanging from its forward-curving roof.
Downstage right is a small, trellised arbor, shaped like a sea shell, with a decorative bulb hanging from its forward-curving roof.
- An enclosure/cocoon; speaks off a false sense of protection and shelter
Garden chairs and a table are scattered about.
- Messy (degree of disorder); foreshadows problems in the midst of seemingly neatness and protection.
A garbage pail on the ground next to the porch steps, a wire leaf burner near it.
A garbage pail on the ground next to the porch steps, a wire leaf burner near it.
- Joe's disposal of potatoes: His sense of order and tidiness is about to be disrupted and ruptured.
- Part of everyday domestic life
- Symbol of decay that is linked with consumerism/materialism
On the rise: It is early Sunday morning.
- Image of complete relaxation as Keller basks in the sun
Joe Keller is sitting in the sun reading the want ads of the Sunday paper, the other sections of which lie neatly on the ground beside him.
Joe Keller is sitting in the sun reading the want ads of the Sunday paper, the other sections of which lie neatly on the ground beside him.
- Keen to be updated on economic transactions/market front
- Keller does not seem to be lacking anything as he is fulfilling the American Dream (family & money)
Behind his back, inside the arbor, Doctor Jim Bayliss is reading part of the paper at the table.
Keller is nearing sixty.
A heavy man of stolid mind and build, a business man these many years but with the imprint of the machine-shop worker and boss still upon him.
When he reads, when he speaks, when he listens, it is with the terrible concentration of the uneducated man for whom there is still wonder in many commonly known things,
Behind his back, inside the arbor, Doctor Jim Bayliss is reading part of the paper at the table.
Keller is nearing sixty.
A heavy man of stolid mind and build, a business man these many years but with the imprint of the machine-shop worker and boss still upon him.
When he reads, when he speaks, when he listens, it is with the terrible concentration of the uneducated man for whom there is still wonder in many commonly known things,
A man whose judgments must be dredged out of experience and a peasant-like common-sense.
- Joe's knowledge of the world comes from experience of the things bout him (consider: is he beholden to society's expectations?)
- Joe's knowledge of the world comes from experience of the things bout him (consider: is he beholden to society's expectations?)
A man among men.
[Microeconomics] Policies to address Market Failure in SG private transport industry
NJC Promotional Examinations 2012 - Case Study
Discuss the view that 'cuts in COE quotas" may not be the best solution to address the market failure in the private transport industry. [10]
Question Requirement
- 3 Specific Policies to address Market Failure
- How does each Policy work?
- Pros & Cons of each Policy
- Final Evaluation
Policy 1: Cuts in COE Quotas
Ref Fig 1 (Negative Externality Diagram)
- Current consumption level of cars: Qp, where MPB=MPC
- However, we did not consider MEC (congestion). There is convergence between MPB and MSB.
- The full opportunity cost to society is denoted by MSC, which lies above the MPC curve by the amount of additional external cost. Assuming MEB=0, MSB=MPB.
- The socially optimal level of output is Qs, where MSC=MSB.
*This part has already been explained in an earlier CS Question.
- There is a presence of negative externality in consumption.
- Overconsumption of QsQp units.
- There is misallocation of resources.
- This results in Market Failure, which gives rise to a DWL (Area AE0E1). Thus, there is allocative inefficiency.
Ref Fig 2 (Price Inelastic Demand, Perfectly Price Inelastic Supply)
- When there are cuts in COE quota, the supply curve for COE shifts leftwards from S0 to S1. This drives the price up from P0 to P1.
- When the price of COE increases, the MPC of owning cars will increase. (bc you must pay more!!)
- The MPC curve shifts upwards from MPC0 to MPC1=MPC0 + COE Price.
- Consumers thus consume at output Qs.
Pros
- From the sales of COE, you can gain welfare ITO increased revenue. (why so? later, you'll see that the 'demand curve' aka MPB=MSB is relatively price inelastic, so driving the price up will result in a less than proportionate decreases in quantity of COE, thus revenue increases!)
Cons
- Regressive in nature: This penalises the lower-income groups as compared to the higher-income groups. --> Not equitable
- It controls ownership, not car usage. Considering that the price of COE is driven up, drivers are incentivised to drive more often so as to ensure that the COE was 'worth it'. When consumption increases, it decreases the AFC for the consumer. This may lead to worsened congestion. (think of it as a buffet: after you pay your lump sum of $80 at the line, you will definitely want to eat to your heart's content, right? just so that your money is spent really well, aka spread across as large an output as possible!)
Policy 2: Improvement in Public Transport
- When public transport is improved (i.e. shorter waiting time, lesser train breakdowns), taste and preferences of consumers will change favourably towards public transport.
- Demand for public transport will increase. Considering that public transport and private transport are substitutes in consumption, demand for private transport will decrease.
- MPB Curve shifts leftwards.
Pros
- Sustainable
- Can have additional benefits such as an improved transport network and possible economic growth.
Cons
- Very costly to improve Public Transport
- Takes a long time to implement
- May be ineffective if consumers don't find it substitutable
Policy 3: ERP
- It increases the MPC of using a particular road.
Pros
- It directly addresses the issue of car usage --> discourages car usage.
- It's a flexible policy as the government can change ERP rate.
Cons
- It is difficult to measure the monetary value of MEC at Qs.
➡ If the MEC at Qs is overestimated, ERP charges will be too high, causing MEC to shift up too much. This results in underconsumption of the road.
- Ineffective as the PED value for road usage is low (remember what was said earlier on cuts in coe quota = increase revenue?)
- Possible diversion of congestion to other roads
Evaluation
Use ERP as a ST policy as it is not viable in the LR (consider the disadvantages of erp!) The tax revenue from ERP can be utilized to improve public transport, where it is sustainable and has many added benefits.
Sunday 28 August 2016
josef
and so, my bible was spotted today. i thought that hiding it in plain sight would deter questions, as compared to placing it in the depths of a cupboard drawer.
while history is unbelievably tedious, i find myself loving it more and more each day. especially southeast asian history. the sub-theme on national unity made me think - is singapore really that good? or are other regions simply that unstable?
i do love my family, in spite of many things i say. i love the way i get to eat as much as i like, to the point that i overlook the fact that i'm constantly advised to eat more 料 and less 饭. i (sometimes) love their compliments, especially on a bad day. i love how we speak chinese because it's who we are.
yet, it's so difficult to know about the harsh views they hold about many things around us.
on an unrelated note, i was thinking of what i'm going to do after a levels.
- find a job
- search up on scholarships
- services
- compile files and notes
- tidy the house
- tuition for the kids
- read
- library trips
- salvage whatever i have left in my social circle
- sleep
- grad trip
- keep fit
- you.
also, uni plans. will i selfishly leave and deplete my parents' retirement fund or will i sacrifice the most exciting and free experience of my life?
unrelated, once more. i wrote a poem a few days ago. there weren't any heads nor tails. typical.
while history is unbelievably tedious, i find myself loving it more and more each day. especially southeast asian history. the sub-theme on national unity made me think - is singapore really that good? or are other regions simply that unstable?
i do love my family, in spite of many things i say. i love the way i get to eat as much as i like, to the point that i overlook the fact that i'm constantly advised to eat more 料 and less 饭. i (sometimes) love their compliments, especially on a bad day. i love how we speak chinese because it's who we are.
yet, it's so difficult to know about the harsh views they hold about many things around us.
on an unrelated note, i was thinking of what i'm going to do after a levels.
- find a job
- search up on scholarships
- services
- compile files and notes
- tidy the house
- tuition for the kids
- read
- library trips
- salvage whatever i have left in my social circle
- sleep
- grad trip
- keep fit
- you.
also, uni plans. will i selfishly leave and deplete my parents' retirement fund or will i sacrifice the most exciting and free experience of my life?
unrelated, once more. i wrote a poem a few days ago. there weren't any heads nor tails. typical.
[Microeconomics] Merit Good
Libraries are considered merit goods as they generate positive externalities when consumed.
Eg. Develop an attitude for lifelong learning through books and media items provided at Libraries. The society is likely to become more civilized and sophisticated, leading to greater understanding among people with differing points of view. With increased literacy and education level, Singapore will be more competitive.
- Private bookstores such as Popular and Kinokuniya provide books for the public to purchase. If the Book Market is left to the private sector only, people will be forced to purchase books just so that they can read.
- These private bookstores have significant market power. The provision of Libraries will be a good substitute to private bookstores and curb their market power.
- The public has Imperfect Information on the benefits of Libraries. (example as stated above in orange)
Eg. Develop an attitude for lifelong learning through books and media items provided at Libraries. The society is likely to become more civilized and sophisticated, leading to greater understanding among people with differing points of view. With increased literacy and education level, Singapore will be more competitive.
- Private bookstores such as Popular and Kinokuniya provide books for the public to purchase. If the Book Market is left to the private sector only, people will be forced to purchase books just so that they can read.
- These private bookstores have significant market power. The provision of Libraries will be a good substitute to private bookstores and curb their market power.
- The public has Imperfect Information on the benefits of Libraries. (example as stated above in orange)
Assume that the cost of reading is given by MPC = MSC, where there is no marginal external cost.
MPC: Cost of travelling to bookstore, cost of buying books
MPB: Improved vocabulary, reduced stress
- Consumers maximize their satisfaction by consuming at the point where MPC=MPB, at Equilibrium N and Output Qmkt.
- The benefits of having access to info through Libraries are also enjoyed by third parties (positive externality!), thus there is existence of MEB, as indicated by the divergence between MSB and MPB.
- The socially optimal level of output is Qpf (tbh i cant even read it), where MSB=MSC, at equilibrium M.
- There is an underconsumption of book-reading by QmktQpf Units.
- Private households and firms have failed to internalise the MEB, leading to allocative efficiency, as represented by the deadweight loss of Area LMN. The DWL incurred is due to the potential gain for societal welfare with the increased consumption of book-reading.
- The potential benefit gained (Area LMQpfQmkt) is greater than the potential cost incurred (Area NMQpfQmkt), thus incurring a welfare loss of Area LMN.
carattere
i saw this word on a random lady's bag on the train. i'm on my way to meet my family for dinner, just like any other sunday evening of 2016.
seems like jc is the period for everyone to really live life. what the hell am i doing? whenever i'm free from the greatest commitment, there's always something that needs to be revised, new notes to print, planners to organize. i want to bake, go to the zoo, read the books collecting dust on my shelf, top up my indie-folk playlist, catch up on naps, eat buffets without a care in the world, stalk larry conspiracy theories and above all, go out with you. i miss you and the times we made an effort for each other, when we hid our flaws as a compromise. i miss the days when we hug as we part, that was always always always my favourite part - there was no other place where i felt so safe in. i miss that so much to the point that i almost regret telling you what i did that fateful day. because from then on, from that very moment i pushed you away, so many others seem so charmed by you. i watched the smile fall from your face as you turn away from her towards me. like i am a mere obligation, like i'm no longer interesting to you anymore. did i throw away the biggest opportunity of my life?
ask me to sing for you, any day, i will. where is our young love.
[Literature Paper 3] An introduction to Individual and Society
Individual and Society - Relationship and Interaction between Individual and Society
Study of Man in relation to community/people/constructs/institution/etc. (Relationship and Significance)
➡ Is the individual dependent on society?
➡ Is society dependent on the individual?
➡ How important is this relationship in life?
Nature of Interaction
➡ How is the interaction between Individual and Society regarded?
➡ What are the dynamics of this interaction? [Power struggle]
Individual – Identity, role, purpose, place
➡ Is identity, role, purpose, place defined by society?
➡ How do they become defined and developed?
Limitations and/or possibilities an individual faces
➡ To what extent does society influence these limitations and possibilities?
➡ To what extent are they influenced by an individual’s decisions?
Conflicts, or lack thereof, between individual and environment
➡ Influencing factors, Nature of Resolution, Outcomes, Significance of literary presentation
Man against Man/Nature/Technology/Supernatural/Self/Fate/Society
Individual – Societal expectations/Social roles shape and define individuals
➡ Gender, class, race, ideology, values, tradition, history, community
➡ Environment
➡ Culture – Practices, meaning, language, symbols
➡ Power – hierarchy, relations, structure
➡ Who has power over who?
➡ Does Man go with the flow?
Individual is in a state of displacement, alienation, isolation and stasis.
Awakening on the Individual’s consciousness
➡ Realization of role/purpose/expectation in society
➡ Something more to their identity
➡ Different Individuals have different reactions, thus there may be conflict with external forces
Individual on a journey (metaphor) of transformation & change
➡ Do they find themselves?
➡ Can they live in Society?
Conflict
➡ Within self
➡ With other characters
➡ With external forces
➡ Real or Imagined conflicts
Conflict between Individual and Society
➡ Individual have choices but Society has expectations
➡ Individuals have expectations in which the society cannot conform to
Concepts relating to Individual and Society
Displacement and Rootedness
Isolation and Assimilation
Conformity and Difference
➡ If you are part of Society, do you lose yourself?
➡ What makes you different?
Duty and Desire
➡ Can an Individual have his own choices?
➡ Or is the Individual bound to societal expectations?
Stasis and Change
➡ Are you stuck in the same thing?
➡ Is there assimilation to Society?
Appearance and Reality
➡ Are they part of Society as an appearance?
➡ Or are they truly in Society?
Private and Public
➡ How does the private individual function in the public sphere?
➡ Does he have to put up with lots of appearances to do so?
CONCEPT OF SOCIETY – What is the societal view in the text/theme?
Society (particular): New Orleans, Elysian Fields Neighbourhood, Belle Reve
Society (general): People, Place, Era (20th Century America), Behaviour, Ideas, Beliefs
American Dream – no matter who you are, you can make it big
Company – beauracratic (negative impact on indiv), hierarchical, organized ➡ characterizes a society!
Societal characteristics: Patriarchal, judgemental, energetic, volatile [NOT EXHAUSTIVE]
- Do Stanley and Mitch express some of these views? Note that Stan is not representative of the society.
- Does a character express societal views?
Society can ‘act’: Welcome, Accept, Judge, Expect, Alienate
➡ This can be evaluated in relation to theme.
➡ What does Society have to say about: Love, Marriage, Aging
Examples:
The Society of New Orleans is lively and joyful. / The neighbourhod is of working class.
Society frowns upon promiscuity, espsecially women. / Society is patriarchal.
Concept of Individual
Individual (Particular): Blanche
Individual (General): An Indiv
An Indiv (in relation to Society) can:
- Support/Agree
- Be indifferent
- Avoid/Hide
- Disagree/Oppose
- Change
- Try to fit in
Study of Man in relation to community/people/constructs/institution/etc. (Relationship and Significance)
➡ Is the individual dependent on society?
➡ Is society dependent on the individual?
➡ How important is this relationship in life?
Nature of Interaction
➡ How is the interaction between Individual and Society regarded?
➡ What are the dynamics of this interaction? [Power struggle]
Individual – Identity, role, purpose, place
➡ Is identity, role, purpose, place defined by society?
➡ How do they become defined and developed?
Limitations and/or possibilities an individual faces
➡ To what extent does society influence these limitations and possibilities?
➡ To what extent are they influenced by an individual’s decisions?
Conflicts, or lack thereof, between individual and environment
➡ Influencing factors, Nature of Resolution, Outcomes, Significance of literary presentation
Man against Man/Nature/Technology/Supernatural/Self/Fate/Society
Individual – Societal expectations/Social roles shape and define individuals
➡ Gender, class, race, ideology, values, tradition, history, community
➡ Environment
➡ Culture – Practices, meaning, language, symbols
➡ Power – hierarchy, relations, structure
➡ Who has power over who?
➡ Does Man go with the flow?
Individual is in a state of displacement, alienation, isolation and stasis.
Awakening on the Individual’s consciousness
➡ Realization of role/purpose/expectation in society
➡ Something more to their identity
➡ Different Individuals have different reactions, thus there may be conflict with external forces
Individual on a journey (metaphor) of transformation & change
➡ Do they find themselves?
➡ Can they live in Society?
Conflict
➡ Within self
➡ With other characters
➡ With external forces
➡ Real or Imagined conflicts
Conflict between Individual and Society
➡ Individual have choices but Society has expectations
➡ Individuals have expectations in which the society cannot conform to
Concepts relating to Individual and Society
Displacement and Rootedness
Isolation and Assimilation
Conformity and Difference
➡ If you are part of Society, do you lose yourself?
➡ What makes you different?
Duty and Desire
➡ Can an Individual have his own choices?
➡ Or is the Individual bound to societal expectations?
Stasis and Change
➡ Are you stuck in the same thing?
➡ Is there assimilation to Society?
Appearance and Reality
➡ Are they part of Society as an appearance?
➡ Or are they truly in Society?
Private and Public
➡ How does the private individual function in the public sphere?
➡ Does he have to put up with lots of appearances to do so?
CONCEPT OF SOCIETY – What is the societal view in the text/theme?
Society (particular): New Orleans, Elysian Fields Neighbourhood, Belle Reve
Society (general): People, Place, Era (20th Century America), Behaviour, Ideas, Beliefs
American Dream – no matter who you are, you can make it big
Company – beauracratic (negative impact on indiv), hierarchical, organized ➡ characterizes a society!
Societal characteristics: Patriarchal, judgemental, energetic, volatile [NOT EXHAUSTIVE]
- Do Stanley and Mitch express some of these views? Note that Stan is not representative of the society.
- Does a character express societal views?
Society can ‘act’: Welcome, Accept, Judge, Expect, Alienate
➡ This can be evaluated in relation to theme.
➡ What does Society have to say about: Love, Marriage, Aging
Examples:
The Society of New Orleans is lively and joyful. / The neighbourhod is of working class.
Society frowns upon promiscuity, espsecially women. / Society is patriarchal.
Concept of Individual
Individual (Particular): Blanche
Individual (General): An Indiv
An Indiv (in relation to Society) can:
- Support/Agree
- Be indifferent
- Avoid/Hide
- Disagree/Oppose
- Change
- Try to fit in
[Microeconomics] Economies of Scale
Internal Economies of Scale
Technical EOS: Indivisibilities
- Machines have fixed capacity.
- Regardless of amount of output produced by firm, the firm still has to utilize these machines.
- For firms with smaller output, there may be under-utilization of the capital.
- Larger firms are more able to spread the cost across a higher output level, thereby lowering LRAC.
Eg. Supermarket chains such as NTUC and Giant can invest in technology that improves stock control. It is not cost efficient/viable for smaller provision shops to purchase such a technology.
Technical EOS: Specialization of Labour
- In a large [state nature of firm] firm which has different stages of production/roles - [state the stages of production/roles] - it allows workers with specific skills to be deployed to different stages/roles of [state what the firm does].
- By performing and focusing on the same task, the specialized labour can become very skilled and perform the task with speed and efficiency.
- Less training time required, less time wasted by workers transferring from one task to another, raising the productivity of the inputs used.
- Increasing Returns-to-scale (RTS), where an increase in input leads to a more than proportionate increase in output of the firm. This lowers LRAC.
Eg. Bicycle manufacturing firm has several stages of production: bike frame manufacture, assembly of bicycle, safety testing
Eg. Yoga studio has several roles: Yoga instructors, administrative staff (liaise with instructors/students, settle school fees, manage advertising)
Financial EOS
- Larger firms have more physical assets to offer as collateral.
- In the event that the borrower defaults the loan, the bank can receive the collateral as payment, hence deem large firms as low risk borrowers.
- As banks are more willing to lend them money at lower interest rates, the firm's cost of borrowing will decrease. Subsequently, LRAC decreases.
*Small firms, such as GP, will find it inefficient to specialize labour resources. It is inefficient to have doctors specializing in different illnesses.
Marketing EOS
- Large firms can capitalize on its bargaining power to bulk buy its equipment at favourable rates, which can substantially reduce the cost of each unit purchased. LRAC decreases as output increases.
Eg. Bike firm buys steel from steelmakers. GP clinic cannot bulk buy as they need a small quantity of materials.
-Large firms can afford national advertising campaigns to gain publicity. They can spread the high advertising costs over a large output, thereby lowering LRAC.
Eg. Bike firms can advertise and promote their bikes through sponsorship of world events.
Organisational EOS
- Cost savings may be enjoyed when the employment of the best managers is spread out across a larger output, increasing efficiency and decreasing the cost per unit of output.
Eg. Centralised administration of the firm: HR department can administer all the wages. In a merger, only 1 finance department is needed.
Managerial EOS
- As a firm grows, there is greater potential for managers to specialize in particular tasks. Large scale manufacturers employ specialists to supervise production systems. With better management, productivity increases, lowering LRAC.
Risk-Bearing EOS
- Large firms can diversify its risks more efficiently due to its larger scale of operation and thus is more likely to have enough resources to deal with potential contingencies.
- For firms that operate in several markets, losses in one market can be overcome by gains in another market. This reduces LRAC associated with uncertainty.
Eg. When DD in one market falls, excess stocks can be sold in another market to cut back on storage costs.
Economies of Scope
- Large firms often produce a range of products. Each individual product is being produced more cheaply than if it was produced in a single-product firm.
- EOSc allows various overhead costs, M/F/O economies to be shared among the various products.
Eg. A firm that produces a whole range of CD players, amplifiers and tuners can benefit from the bulk purchase of electronic components. By sharing marketing and distribution costs, LRAC decreases.
Eg. Large yoga studios offer a range of services. Overhead costs such as rental can be shared among many services offered, thus lowering LRAC.
Internal Diseconomies of Scale
Loss of Control
- Difficult to manage performance of employees in large firm.
- Loss of morale may lead to decreased productivity and lowers the quality of products produced. This increases LRAC.
Eg. When yoga instructors feel unmotivated, they may turn up for classes late. Customers may be dissatisfied with the service provided and quit the yoga classes. Inefficiency and decreased productivity will lead to an increase in LRAC.
Eg. It is difficult to monitor the use of factor inputs, such as malt barley, a key ingredient in the brewing of beer. The lack of supervision may cause these factor inputs to not be effectively utilised, thereby increasing wastage and increasing LRAC.
Lack of communication
- Larger firms have longer lines of communication and a more complex bureaucratic structure, thus the task of coordinating their activities becomes increasingly difficult.
- It's difficult to ensure that all employees get the necessary information.
- Delays in one part of production will have greater repercussions [state examples] as compared to smaller firms. This leads to inefficiency and higher LRAC.
External Economies of Scale
Economies of Concentration: Trained workforce
- As the industry expands, the DD for labour with the necessary skillsets increase.
- Training schools may be set up to provide training and education, which means that a pool of skilled workers is readily available.
- Hence, individual firms do not need to provide additional training as the manpower they hire already acquire the requisite skills, reducing training and search costs for the firm, thereby lowering it's LRAC.
Economies of Concentration: Better Industry Infrastructure
- Due to concentration of industry, facilities such as better transport, baking and telecommunication systems may be set up to serve the needs of the industry.
- Greater access to clusters of supply goods can help to lower operating costs.
- Also, when different firms in the industry share usage of special equipment instead of buying their own, they are able to reduce logistics costs, thus helping them to lower their LRAC.
Eg. Firms in the biomedical hub Biopolis can share facilities. Nearby educational institutes such as SP and NUS can provide specialized education and training to meet the needs of the biomedical industry,
Economies of Information
- Firms are able to get info from other firms or external vendors, such as trade associations or central research centres.
- They can obtain up-to-date info on production cheaply by sharing the costs of research instead of spending heavily on costly independent research.
Technical EOS: Indivisibilities
- Machines have fixed capacity.
- Regardless of amount of output produced by firm, the firm still has to utilize these machines.
- For firms with smaller output, there may be under-utilization of the capital.
- Larger firms are more able to spread the cost across a higher output level, thereby lowering LRAC.
Eg. Supermarket chains such as NTUC and Giant can invest in technology that improves stock control. It is not cost efficient/viable for smaller provision shops to purchase such a technology.
Technical EOS: Specialization of Labour
- In a large [state nature of firm] firm which has different stages of production/roles - [state the stages of production/roles] - it allows workers with specific skills to be deployed to different stages/roles of [state what the firm does].
- By performing and focusing on the same task, the specialized labour can become very skilled and perform the task with speed and efficiency.
- Less training time required, less time wasted by workers transferring from one task to another, raising the productivity of the inputs used.
- Increasing Returns-to-scale (RTS), where an increase in input leads to a more than proportionate increase in output of the firm. This lowers LRAC.
Eg. Bicycle manufacturing firm has several stages of production: bike frame manufacture, assembly of bicycle, safety testing
Eg. Yoga studio has several roles: Yoga instructors, administrative staff (liaise with instructors/students, settle school fees, manage advertising)
Financial EOS
- Larger firms have more physical assets to offer as collateral.
- In the event that the borrower defaults the loan, the bank can receive the collateral as payment, hence deem large firms as low risk borrowers.
- As banks are more willing to lend them money at lower interest rates, the firm's cost of borrowing will decrease. Subsequently, LRAC decreases.
*Small firms, such as GP, will find it inefficient to specialize labour resources. It is inefficient to have doctors specializing in different illnesses.
Marketing EOS
- Large firms can capitalize on its bargaining power to bulk buy its equipment at favourable rates, which can substantially reduce the cost of each unit purchased. LRAC decreases as output increases.
Eg. Bike firm buys steel from steelmakers. GP clinic cannot bulk buy as they need a small quantity of materials.
-Large firms can afford national advertising campaigns to gain publicity. They can spread the high advertising costs over a large output, thereby lowering LRAC.
Eg. Bike firms can advertise and promote their bikes through sponsorship of world events.
Organisational EOS
- Cost savings may be enjoyed when the employment of the best managers is spread out across a larger output, increasing efficiency and decreasing the cost per unit of output.
Eg. Centralised administration of the firm: HR department can administer all the wages. In a merger, only 1 finance department is needed.
Managerial EOS
- As a firm grows, there is greater potential for managers to specialize in particular tasks. Large scale manufacturers employ specialists to supervise production systems. With better management, productivity increases, lowering LRAC.
Risk-Bearing EOS
- Large firms can diversify its risks more efficiently due to its larger scale of operation and thus is more likely to have enough resources to deal with potential contingencies.
- For firms that operate in several markets, losses in one market can be overcome by gains in another market. This reduces LRAC associated with uncertainty.
Eg. When DD in one market falls, excess stocks can be sold in another market to cut back on storage costs.
Economies of Scope
- Large firms often produce a range of products. Each individual product is being produced more cheaply than if it was produced in a single-product firm.
- EOSc allows various overhead costs, M/F/O economies to be shared among the various products.
Eg. A firm that produces a whole range of CD players, amplifiers and tuners can benefit from the bulk purchase of electronic components. By sharing marketing and distribution costs, LRAC decreases.
Eg. Large yoga studios offer a range of services. Overhead costs such as rental can be shared among many services offered, thus lowering LRAC.
Internal Diseconomies of Scale
Loss of Control
- Difficult to manage performance of employees in large firm.
- Loss of morale may lead to decreased productivity and lowers the quality of products produced. This increases LRAC.
Eg. When yoga instructors feel unmotivated, they may turn up for classes late. Customers may be dissatisfied with the service provided and quit the yoga classes. Inefficiency and decreased productivity will lead to an increase in LRAC.
Eg. It is difficult to monitor the use of factor inputs, such as malt barley, a key ingredient in the brewing of beer. The lack of supervision may cause these factor inputs to not be effectively utilised, thereby increasing wastage and increasing LRAC.
Lack of communication
- Larger firms have longer lines of communication and a more complex bureaucratic structure, thus the task of coordinating their activities becomes increasingly difficult.
- It's difficult to ensure that all employees get the necessary information.
- Delays in one part of production will have greater repercussions [state examples] as compared to smaller firms. This leads to inefficiency and higher LRAC.
External Economies of Scale
Economies of Concentration: Trained workforce
- As the industry expands, the DD for labour with the necessary skillsets increase.
- Training schools may be set up to provide training and education, which means that a pool of skilled workers is readily available.
- Hence, individual firms do not need to provide additional training as the manpower they hire already acquire the requisite skills, reducing training and search costs for the firm, thereby lowering it's LRAC.
Economies of Concentration: Better Industry Infrastructure
- Due to concentration of industry, facilities such as better transport, baking and telecommunication systems may be set up to serve the needs of the industry.
- Greater access to clusters of supply goods can help to lower operating costs.
- Also, when different firms in the industry share usage of special equipment instead of buying their own, they are able to reduce logistics costs, thus helping them to lower their LRAC.
Eg. Firms in the biomedical hub Biopolis can share facilities. Nearby educational institutes such as SP and NUS can provide specialized education and training to meet the needs of the biomedical industry,
Economies of Information
- Firms are able to get info from other firms or external vendors, such as trade associations or central research centres.
- They can obtain up-to-date info on production cheaply by sharing the costs of research instead of spending heavily on costly independent research.
Saturday 27 August 2016
[Microeconomics] Vulnerability to closure in a recession
"Recessions put weak firms out of business whilst strong firms use a recession to become more efficient."
Discuss the extent to which firms faced by high levels of competition are more vulnerable to closure in a recession than firms in less competitive industries. [15]
Intro
Firms facing high levels of competition: PC, MC, non-collusive Oligopoly
Firms facing low levels of competition: Collusive Oligopoly, Monopoly
When a firm is more vulnerable to closure, it is more likely to attain the shut down conditions of P<AVC in the short run and P<AC in the long run.
Body
- During a recession, the average consumer's income will fall.
- Due to the decreased purchasing power of the consumer, it makes him less willing and able to purchase normal goods (YED>0). This causes the demand for normal goods to fall.
- However, a recession would increase the willingness of consumers to purchase inferior goods (YED<0), hence the demand for inferior goods will increase.
- In this scenario, a firm which sells inferior goods, such as home-brand products, will face a rightward shift in its AR Curve, regardless of the level of competition it faces.
- The output produced by the firm will increase and the price paid for by the consumer will increase as well.
- More competitive firms who initially earn normal profits will now reap supernormal profits, while less competitive firms continue to retain their supernormal profits in the long run.
- However, should a firm sell normal goods, it will result in a leftward shift of its AR curve, as shown in Figure 1 below.
- For firms facing a higher level of competition, the profit-maximizing output level (MC=MR) will fall from Q0 to Q1, and the price will fall as well. In the short run, the resulting price is lower than SRAC. If P remains below AC in the long run, the firm will shut down.
- On the other hand, for firms facing a lower level of competition, they initially earn supernormal profits in the long run. When the demand for their good decreases, their AR curve will shift leftwards, as illustrated, as illustrated on Figure 2 below. If AR0 shifts to AR1, the resulting price P1 is equal to AC1, the new average cost at the new profit maximizing level of output. The firm will not shut down as it is making normal profits in the long run.
However, should the AR curve shift leftwards by a larger extent than AR1, the firm will definitely make subnormal profits and shut down in the long run. Therefore, for firms facing a lower level of competition, it depends on the extent of fall in demand to determine if they will shut down. Because there is a possibility for firms facing lower competition to not shut down when faced with a fall in demand, they are less vulnerable to closure.
[Fig 1: Rev/Cost/Price Diagram for imperfect market. After leftward shift of AR/MR, P<AC.]
[Fig 2: Rev/Cost/Price Diagram for imperfect market. After leftward shift of AR/MR, P=AC. That means AR1=MR0, AC1=P1.]
- To determine a firm's vulnerability to closure, we can also consider its ability and incentive to innovate.
- Assuming that they produce normal goods and face a fall in demand, engaging in innovation will allows firms to lessen the impact of the fall in demand, or even increase the demand of the normal good.
- PC firms produce homogeneous products and have perfect information. Should they engage in innovation, other PC firms will follow suit as they have the same information on innovation. Thus, PC firms have no incentive to innovate.
- Also, because there are many sellers in a PC industry, super normal profits earned in the short run will be eroded away in the long run when new firms enter and capture a portion of the market share. Ultimately, PC firms can only earn normal profits in the long run, making them unable to engage in innovation, which is costly and unaffordable.
- While MC firms produce differentiated products and have the incentive to make their product more distinctive to increase demand or make the demand more price inelastic, it can only earn normal profits in the long run, and thus only has a low ability to innovate.
- We can then conclude that firms facing higher levels of competition are relatively unable to cushion the fall in demand to increase revenue.
- However, for oligopolies, they are competing with several other dominant firms and hence will seek to capture a larger proportion of the total market share. This provides them with the incentive to innovate.
- Considering that an oligopoly has high entry barriers, there will not be sufficient new firms entering the market to erode the supernormal profits reaped by the oligopolist, in the long run. This gives the oligopolist the ability to engage in innovation as it can bear the high costs of product differentiation.
- Likewise, for monopolies, they may engage in innovation if they feel that their dominant position is being threatened by a potential entrant.
- Also, because they capture the entire market share, they can earn supernormal profits in the long run and thus have sufficient capital to engage in innovation.
- Clearly, firms facing lesser competition have the incentive and ability to innovate, making them more able to improve their products and increase the demand for their products, which will drive the price up. Therefore, they are less vulnerable to closure than firms faced with higher competition.
- We can also consider the size of the firms to determine if they are in a good position to reap internal economies of scale (iEOS).
- For MC and PC firms, they tend to be small and will not capture a large portion of the total market share. On the other hand, oligopolies and monopolies are dominant firms in their industries and they produce a very significant portion of the total market supply.
- Here, we can see that less competitive firms tend to be larger and thus, are in a better position to enjoy iEOS.
- For example, they can reap financial economies. Larger firms have more valuable assets to offer collateral, and in the event that they default the bank loan, the bank can take the collateral as payment. This deems larger firms as low-risk borrowers and the bank will be more willing to offer them loans at lower interest rates, thereby decreasing their cost of borrowing. This puts less competitive firms in a better position to lower their LRAC, making them less likely to meet the long-run shut down condition of P<AC, as compared to smaller firms, who are less able to reap significant cost advantages.
- Hence, firms facing lower levels of competition are less vulnerable to closure than firms facing higher competition.
- However, we have to consider the possibility that firms facing lower competition may suffer from increased average costs due to x-inefficiency.
- This is especially so for monopolies. As they are the sole seller in the industry, they may feel that there is no threat of competition.
- Also, because they reap supernormal profits in the long run, they feel that their market share will not be eroded. As a result, they become complacent and have a lax in cost control. At the profit maximizing output level of Q0 on Figure 3, the firm is supposed to incur a LRAC of AC0, but they end up incurring a higher than necessary cost of AC1 instead.
- The firm thus suffers from x-inefficiency as it does not produce on the LRAC, causing them to suffer from productive inefficiency.
[Fig 3: Regular x-inefficiency diagram]
- In the above scenario, the less competitive firm will only shut down if the LRAC increases significantly, to the point that it is higher than P0.
While a firm can be complacent, it is unlikely that it will be so lax on cost- controls to the point that they need to shut down in the long run.
Conclusion
- Considering that more competitive firms are in a worse position than less competitive firms to increase the demand for their product or to lessen the impact of the fall in AR, they will be more likely to reach the shutdown conditions of P<AC.
- Also, because they are less able to reduce LRAC, it makes them more vulnerable to closure during a recession.
- The only way that less competitive firms are more more likely to shut down during a recession is that PC and MC firms produce inferior goods and the oligopolies and monopolies produce normal goods.
Discuss the extent to which firms faced by high levels of competition are more vulnerable to closure in a recession than firms in less competitive industries. [15]
Intro
Firms facing high levels of competition: PC, MC, non-collusive Oligopoly
Firms facing low levels of competition: Collusive Oligopoly, Monopoly
When a firm is more vulnerable to closure, it is more likely to attain the shut down conditions of P<AVC in the short run and P<AC in the long run.
Body
- During a recession, the average consumer's income will fall.
- Due to the decreased purchasing power of the consumer, it makes him less willing and able to purchase normal goods (YED>0). This causes the demand for normal goods to fall.
- However, a recession would increase the willingness of consumers to purchase inferior goods (YED<0), hence the demand for inferior goods will increase.
- In this scenario, a firm which sells inferior goods, such as home-brand products, will face a rightward shift in its AR Curve, regardless of the level of competition it faces.
- The output produced by the firm will increase and the price paid for by the consumer will increase as well.
- More competitive firms who initially earn normal profits will now reap supernormal profits, while less competitive firms continue to retain their supernormal profits in the long run.
- However, should a firm sell normal goods, it will result in a leftward shift of its AR curve, as shown in Figure 1 below.
- For firms facing a higher level of competition, the profit-maximizing output level (MC=MR) will fall from Q0 to Q1, and the price will fall as well. In the short run, the resulting price is lower than SRAC. If P remains below AC in the long run, the firm will shut down.
- On the other hand, for firms facing a lower level of competition, they initially earn supernormal profits in the long run. When the demand for their good decreases, their AR curve will shift leftwards, as illustrated, as illustrated on Figure 2 below. If AR0 shifts to AR1, the resulting price P1 is equal to AC1, the new average cost at the new profit maximizing level of output. The firm will not shut down as it is making normal profits in the long run.
However, should the AR curve shift leftwards by a larger extent than AR1, the firm will definitely make subnormal profits and shut down in the long run. Therefore, for firms facing a lower level of competition, it depends on the extent of fall in demand to determine if they will shut down. Because there is a possibility for firms facing lower competition to not shut down when faced with a fall in demand, they are less vulnerable to closure.
[Fig 1: Rev/Cost/Price Diagram for imperfect market. After leftward shift of AR/MR, P<AC.]
[Fig 2: Rev/Cost/Price Diagram for imperfect market. After leftward shift of AR/MR, P=AC. That means AR1=MR0, AC1=P1.]
- To determine a firm's vulnerability to closure, we can also consider its ability and incentive to innovate.
- Assuming that they produce normal goods and face a fall in demand, engaging in innovation will allows firms to lessen the impact of the fall in demand, or even increase the demand of the normal good.
- PC firms produce homogeneous products and have perfect information. Should they engage in innovation, other PC firms will follow suit as they have the same information on innovation. Thus, PC firms have no incentive to innovate.
- Also, because there are many sellers in a PC industry, super normal profits earned in the short run will be eroded away in the long run when new firms enter and capture a portion of the market share. Ultimately, PC firms can only earn normal profits in the long run, making them unable to engage in innovation, which is costly and unaffordable.
- While MC firms produce differentiated products and have the incentive to make their product more distinctive to increase demand or make the demand more price inelastic, it can only earn normal profits in the long run, and thus only has a low ability to innovate.
- We can then conclude that firms facing higher levels of competition are relatively unable to cushion the fall in demand to increase revenue.
- However, for oligopolies, they are competing with several other dominant firms and hence will seek to capture a larger proportion of the total market share. This provides them with the incentive to innovate.
- Considering that an oligopoly has high entry barriers, there will not be sufficient new firms entering the market to erode the supernormal profits reaped by the oligopolist, in the long run. This gives the oligopolist the ability to engage in innovation as it can bear the high costs of product differentiation.
- Likewise, for monopolies, they may engage in innovation if they feel that their dominant position is being threatened by a potential entrant.
- Also, because they capture the entire market share, they can earn supernormal profits in the long run and thus have sufficient capital to engage in innovation.
- Clearly, firms facing lesser competition have the incentive and ability to innovate, making them more able to improve their products and increase the demand for their products, which will drive the price up. Therefore, they are less vulnerable to closure than firms faced with higher competition.
- We can also consider the size of the firms to determine if they are in a good position to reap internal economies of scale (iEOS).
- For MC and PC firms, they tend to be small and will not capture a large portion of the total market share. On the other hand, oligopolies and monopolies are dominant firms in their industries and they produce a very significant portion of the total market supply.
- Here, we can see that less competitive firms tend to be larger and thus, are in a better position to enjoy iEOS.
- For example, they can reap financial economies. Larger firms have more valuable assets to offer collateral, and in the event that they default the bank loan, the bank can take the collateral as payment. This deems larger firms as low-risk borrowers and the bank will be more willing to offer them loans at lower interest rates, thereby decreasing their cost of borrowing. This puts less competitive firms in a better position to lower their LRAC, making them less likely to meet the long-run shut down condition of P<AC, as compared to smaller firms, who are less able to reap significant cost advantages.
- Hence, firms facing lower levels of competition are less vulnerable to closure than firms facing higher competition.
Anti-thesis
- However, we have to consider the possibility that firms facing lower competition may suffer from increased average costs due to x-inefficiency.
- This is especially so for monopolies. As they are the sole seller in the industry, they may feel that there is no threat of competition.
- Also, because they reap supernormal profits in the long run, they feel that their market share will not be eroded. As a result, they become complacent and have a lax in cost control. At the profit maximizing output level of Q0 on Figure 3, the firm is supposed to incur a LRAC of AC0, but they end up incurring a higher than necessary cost of AC1 instead.
- The firm thus suffers from x-inefficiency as it does not produce on the LRAC, causing them to suffer from productive inefficiency.
[Fig 3: Regular x-inefficiency diagram]
- In the above scenario, the less competitive firm will only shut down if the LRAC increases significantly, to the point that it is higher than P0.
While a firm can be complacent, it is unlikely that it will be so lax on cost- controls to the point that they need to shut down in the long run.
Conclusion
- Considering that more competitive firms are in a worse position than less competitive firms to increase the demand for their product or to lessen the impact of the fall in AR, they will be more likely to reach the shutdown conditions of P<AC.
- Also, because they are less able to reduce LRAC, it makes them more vulnerable to closure during a recession.
- The only way that less competitive firms are more more likely to shut down during a recession is that PC and MC firms produce inferior goods and the oligopolies and monopolies produce normal goods.
[Microeconomics] Nationalisation
Pros
1. Less profit motive --> can produce at lower P, higher Q. Profit used for distribution of income.
2. Better position to reap iEOS (i.e. Organisational Economies). Pass on cost savings to consumer ITO lower P.
3. Govt has obligation to provide better quality service. [State relevant examples, i.e. higher train frequency]
Cons
1. Less profit motive --> doesn't produce along the LRAC --> Not productive efficient. Extra costs may spill over to consumer ITO higher P.
E: Govt with a good track record is likely to have strict regulations, reducing probability of govt inefficiency.
2. Lack of profit motive hinders innovation in service development and production methods. Consumers may not be able to enjoy lower price or [any other benefits] in the future. [State relevant examples, i.e. higher train frequency]
E: If there is reserve capital, govt can always choose to innovate to appease citizens.
3. High cost of nationalisation --> Funds from tax revenue used. The opportunity cost incurred from nationalisation may be more significant than its benefits. [State relevant examples of Opp Cost, i.e. funds can be used for other important aspects, such as education or defense]
Diagram
I'll upload one of my own if I have the time to do so. If not, use a diagram of a natural monopoly.
Output level Q is the profit-maximizing output level, where MC=MR. When nationalisation occurs, the government seeks to become allocative efficient (P=MC). Let's assume that the area on the diagram where the MR & AR curve meet on the y-axis is denoted as 'D'. The initial consumer surplus is denoted by Area DZP. After setting P=MC, the consumer surplus is represented by DAP1.
At Q1, AC>P, meaning that the firm is reaping subnormal profits in the long run. It fulfills the shut-down conditions for the long run. However, if it shuts down, there is no service. Thus, the government will subsidize the firm to compensate for the subnormal profits so that it ends up making normal profit instead. When it reaps normal profits in the LR, it does not have the ability to innovate due to the high costs of innovation. Thus, the quality of the product offered by the firm may not improve significantly for the consumer.
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