Efficient Market Hypothesis Analysis Essay Example

of a company's stocks, preventing firms from being sold below their actual values. This theory provides protection for businesses.

Cross elasticity is the alteration in demand or supply of one good due to a change in another related good. If the goods are complementary, an increase in the price of one will reduce demand for both products. Conversely, if they are substitutes, a rise in price for one commodity will result in increased demand for the other. The income elasticity of demand evaluates how changes in income affect quantity demanded. For normal goods, they demonstrate a positive income elasticity of demand.

As income rises, the demand for normal goods also rises, whereas when income declines, the demand for normal goods decreases. To ensure efficient production, the firm manufacturing these goods must assess individuals' income levels. Point elasticity of demand quantifies the price elasticity of demand at a particular point on the demand curve, as opposed to over a range. Differentials are employed for this calculation because they capture the significance of very small changes.

By utilizing a small arc, the company examines how adjustments in price influence demand and determines the optimal point. This analysis allows the company to raise prices without adversely affecting demand and ultimately decreasing it. Marginal revenue pertains to the extra income gained from selling an additional unit of a product.

The calculation of marginal revenue allows a company to evaluate its potential by predicting the revenue generated from expanding operations and increasing output. Moreover, by determining the change in total cost when production quantity changes by one unit, the concept of marginal cost assists a firm in deciding if increasing production would decrease overall

costs. To make informed decisions about increasing output, a company should also be aware of its total fixed costs incurred during production.

Fixed costs are expenses that remain constant regardless of the level of production, while variable costs fluctuate based on output quantity. The sum of these costs represents the total production expenses. Throughout our discussion, various economic theories have elucidated the interplay between market forces and firm dynamics.

It is evident that the economy relies on firms as the fundamental unit of production. Therefore, countries seeking economic growth should prioritize the expansion of their firms. When favorable conditions are established, firms can engage in producing goods and services, resulting in increased tax revenue for governments and the construction of additional industries. It is crucial to recognize the inseparability of economies from firms and to implement appropriate business regulations through laws.

Unfair competition can have negative consequences for growing businesses and they require protection.

References

1. Davidson, P (2002). Financial markets, Money and the Real World. Celtenham: Edward Elgar Publishing Ltd.
2. Friedman, M (2007) Price Theory. New Jersey: Transaction Publishers.
3. Garvey, M. D (2004). The Nature of the Firm. Available on 26/10/2007 from World Wide Web www.ssc.edu/