Economic Principle Assignment Help

Economic Principle Assignment Help

Economic Principle Assignment Help

Task 4

This economic priciple assignment help explicit costs are the direct or the accounting costs which are reported in the business documents. This cost is actually incurred by the organization during the production process; as a result, this cost directly impacts the profits of the company. The implicit costs are known as opportunity costs as these costs are not reported in any documents. Implicit costs are the potential loss of a benefit that could have been received from a factor of production. Three examples of explicit cost include payments as rents, wages, and payment on the purchase of raw materials, payments against services of other companies and other bill payments online help. Three examples of implicit costs are interest gained from the capital of the owner, salary could have been paid to the owner and rent paid to the owner of the land (Abbott and Ershad, 2011).

In economics, the long run is considered to be a period of time of production where all the factors of production are variable and there are no constraints to alter the output level by changing the stick of capital. On the other hand, the short run is that period of time of production when certain factors of production are fixed and others are variable. Different firms have different lengths of run. Short run for one firm may last for a week or for another firm it could be for few months (Besanko, Braeutigam and Gibbs, 2011). The length of the short run depends on the level of commitments that producers face in the respective situation.

Costs are calculated:

Total product

(1)

Total fixed cost

(2)

Total variable cost

(3)

Total cost

(4)

Average fixed cost

(5)

Average Variable cost

(6)

Average total cost

(7)

Marginal Cost

(8)

0

60

0

60

-

-

-

-

1

60

50

110

60

50

110

50

2

60

88

148

30

44

74

38

3

60

120

180

20

40

60

32

4

60

150

210

15

37.5

52.5

30

5

60

182

242

12

36.4

48.4

32

Total Cost (4) = (2) + (3)
Average Fixed Cost (5) = (2)/(1)
Average variable cost (6) = (3)/(1)
Average Total cost (7) = (4)/(1)
Marginal cost (8) = Change in total cost (4)

The relationship between the short run and long run average cost curve is represented graphically below:


Source Author

  • The short run cost curve falls, reaches a minimum and then rises as the output increases and hence the curve is U-shaped. The SRAC will continue to vary with the level of output unless the fixed cost is zero or the variable cost is constant (Boyes and Melvin, 2011). The long run cost can also be upward sloping at high levels of output depicting decreasing returns to scale and downward sloping at low levels of output depicting increasing returns to scale. The LRAC also reaches a minimum point where the slope of the curve is zero (Serrano and Feldman, 2012).
  • Minimum efficient scale (MES) is defined as the lowest possible point of production where the long run average cost curve reaches its minimum point. If in the long run firms do not reach the minimum efficient scale, then the firm must continue its production to reach the lowest point on the LRAC curve. If the firm is operating under perfect competition then newer firms would be welcomed in the market to increase the production and reduce the LRAC to its minimum point (Colander, 2013).
  • The law of diminishing managerial economics returns states that as one variable factor of production is increased, then gradually a point will be reached where the marginal return per unit output will start to fall when all the other factors of production are help constant.
  • As the marginal cost increases, the marginal product decreases because of the underlining law of diminishing returns (Varian, 2012). In the first stage of production, increasing marginal returns cause the marginal cost to decline due to the fact that each additional labor would increase his productivity more which means more output can be produced with less labor. In stage II, decreasing marginal returns causes the marginal cost to decline due to the fact that the productivity of additional labor is increasing in fewer amounts and more output will be produced when labor is high. Thus, this explains the inverse relationship between marginal cost and marginal product (Dung, 2013).
  • The increasing number of prisoners would incur economic costs to the prison. This is of great concern to the government as it has incurred a cost of $625 million in the year 2012-13. The law of diminishing marginal returns has been appropriate in this sense. As more and more prisoners are enrolling themselves into the prison, the marginal returns from them are gradually decreasing.
  • The 2 fixed costs include the staff wages and salaries and the prison maintenance. The 2 variable costs include cost of beds and other requirements and cost of food. One of the benefits of increasing prisoners in per prison is the reduced crime rates in the country.
  • The costs that appear as a problem to the nuclear energy are the high cost of the nuclear reactors and the transportation cost from one state to another. The cost of reactors is considered to be the variable cost whereas the transportation costs are sometimes considered to be fixed costs. The uneconomic is a situation where the production process is regarded as unprofitable which means that the money is inefficiently used. If the costs of producing nuclear energy (as mentioned above) are higher than the revenue from it, then t is not profitable and uneconomic to make nuclear plants and produce nuclear energy.
  • A flat demand for grid-based power which I electricity is considered to be complemented by the nuclear energy. If the demand for electricity is stagnant, the demand for nuclear energy will also be stagnant and thus it would be viability to construct new nuclear plants.
  • The solar and wind power are substitutes of nuclear energy. If the solar and wind power is used to make electricity then there will be a decreased demand for nuclear energy to produce electricity and thus, it would not be viable to construct new nuclear power plants (Elsner, 2012).

Task 5

Restaurants are not considered to be perfectly competitive. This is because they do not sell identical food items even though the number of restaurants within a locality can be huge. Corn is considered to be a perfectly competitive as a number of sellers selling corn are high and also they would be selling an identical product which is corn. University education is not considered to be a perfectly competitive market. This is because the each university has differentiated course to offer along with different amenities and different level of quality of education. Local radio and television are also not considered to be perfectly competitive as they do not provide identical products. Some radio stations present programs on music and some present news. On the other hand, television channels are also differentiated on the basis of their channels. Some channels broadcast news, some sports, and other films.

 Allocative efficiency is defined as the situation in which the production is commenced on the basis of consumer preferences which means production is done when the marginal benefit of consumers equal the marginal cost of producing.Under perfect competition, allocative efficiency is achieved when the price is equal to the marginal cost (Fundamentals of business economics, 2011). The productive efficiency is a situation where production of one additional unit of a commodity requires the sacrifice of another commodity. Under perfect competition, the productive efficiency is achieved when the equilibrium output is produced at the point where the average cost is minimum. Allocative efficiency and productive efficiency is quite different under perfect competition. Allocative efficiency deals allocation and distribution of the products on the other hand productive efficiency is producing at the lowest minimum Average cost point.

An oligopoly is defined as the market structure in which the number of sellers is less but their market share is substantially high. In most cases, they form a cartel to operate in the market. The grocery retailing or the supermarkets in Australia operates under the oligopolistic market structure which is Coles and Woolworths. The second example of oligopoly in Australia is the telecommunication companies which includes Telstra, Optus and Vodafone Hutchison (Garnett, 2011). They are regarded as oligopolistic mainly because they have acquired a relatively large market share with less production capability as there are few sellers.

There is a dominant strategy for Godrickporter. If Star connections choose to increase advertising budget then Godrickporter would increase advertising budget and if Star connections choose to leave advertising budget then Godrickporter would still stick to increase advertising budget. So the dominant strategy for Godrickporter is increasing advertising budget in any case. There is no dominant strategy for Star connections. If Godrickporter chooses to increase advertising budget then Star connections would increase advertising budget and if Godrickporter chooses to leave advertising budget then Star connections would leave advertising budget. So there is no dominant strategy for Star connections (Hey, 2012).  There will be an incentive for Start connection to increase advertising budget and earn $15,000 profit when Godrickporter would be earning $12000 profit. The Nash equilibrium of this game will occur when Star Connections would leave advertising budget and Godrickporter would increase advertising budget.

The payoff matrix, in this case, is given below:

 

 

 

Advertise

Doesn’t Advertise

Baine

Adevertise

A: $30 million profit

B: $30 million profit

A: $20 million profit

B: $40 million profit

Doesn’t Advertise

A: $40 million profit

B: $20 million profit

A: $50 million profit

B: $50 million profit

  • When Baine chooses to advertise then Alistair would choose to advertise as ($30>$20)
  • When Baine chooses to not to advertise then Alistair would choose not to advertise as ($50>$40)
  • Again, when Alistair chooses to advertise then Baine chooses to advertise as ($30>$20)
  • When Alistair chooses not to advertise then Baine chooses not to advertise as ($50> $40)
  • Whatever a company chooses, the other company follows it.
  • Thus, there are two nash equilibria which are (Advertise, Advertise) and (Doesn’t Advertise, Doesn’t Advertise)

The long run equilibrium for the gold market and the representative gold mine are provided below:

The demand curve for gold intersects the demand and supply curve at equilibrium and the equilibrium output and price is P1 and Q1 but each firm produces q1 output as in the long run the industry equilibrates at the minimum point of the Average Total Cost (ATC0 and makes zero profit. As the demand for jewelry increases the demand for gold increases which shifts the demand curve to the right from D1 to D2. Accordingly the price increases from P1 to P2 and the industry output increases from Q1 to Q2. The firm’s output also increases from q1 to q2, as a result, the price is now higher than the ATC and thus, the firm yields a positive profit (Hoag, 2013).

As the gold mines are yielding positive profits, new firms will enter the industry and the supply will shift to the right which would reduce the price below. But the fall in the price would not be reach P1 as there is a short supply of gold. The new firms would incur high costs than the incumbent firms as they have to discover new sources of gold. So the long-run industry supply curve would be upward sloping which implies that the long-run equilibrium price will be higher than the previous case.

The OPEC is a cartel that sells oil to numerous nations. They take orders from the oil buyers and set production quotas for each of the OPEC members at a price which is set by the authority. If the members abide by the rules then they would earn a profit like a monopolist. But this system breaks when they start facing inelastic demand curve because individual member misbehaves. This is exactly like the case of prisoner's dilemma. Here the OPEC members are like the prisoners and they produce additional oil to suppress the price by cheating. The reward matrix, in this case, is the increments in the GDP. Thus, OPEC is caught in a prisoner's dilemma (Hoyt and McGoldrick, 2012).

The  increase in the demand for cars causes surge pricing which is shown below:

When demand increases and the demand curve shifts to the right then the price increases (surge pricing). In the absence of surge pricing, there would be deadweight loss and this will cause business economic inefficiency. Surge pricing causes allocative efficiency as uber allocates rides to those consumers who would value the ride and pay the high monetary price for the ride. As the price surge occurs, the consumer’s surplus will fall but the producers surplus will rise. As consumers surplus are falling, consumers have to pay more for the ride and this would upset the consumers (Hubbard and O'Brien, 2012).

Task 6

Network externality is a situation where the consumers derive utility from a product when the number of people who uses the product increases. This attracts more consumers to purchase the product which increases the dominance of the sellers and causes entry barrier. This is not surmountable as an entrant can start selling the superior quality of the product. Advertising can decrease economic welfare as it is a costly affair, manipulates the tastes and preferences of the consumers and impedes competition. On the other hand, can increase economic welfare as it conveys information to the consumers and fosters competition. Being the only seller in the market, the entire market demand would be satisfied by this seller and hence it will face the normal demand curve. The sellers would maximize its profit where Marginal Revenue equals Marginal cost producing lower levels of output and charging high price since he has full market power (Krugman and Wells, 2009).

McDonalds have a certain level of competition as they do not sell identical food items. So they face monopolistic competition and have a downward sloping demand curve. But the cattle ranchers are huge in number and they face perfect competition and horizontal demand curve. But if there are two McDonalds in an area, then there would be perfect competition and then McDonalds would face horizontal demand curve (McConnell, 2011). Both marketing research and brand management are required to understand the purchasing choice of the individuals and not just what they buy. The marketing research will establish an interaction between the customers, sellers, end users to the marketers and the brand management would imply promotion of the products which are derived from market research (McTaggart, Findlay and Parkin, 2012). When CSR and Boral decide to merge then economies of scale arises. This means that because both the companies where incurring high fixed costs, they have decided to merge and reduce the average cost. The diagram below represents the decision:

When the companies merge quantity falls and the price also reduces. The profit also gets shared between the two companies and it also gets reduced (Perloff, 2012). In order to regulate price, two options of merging will be available for the companies which are horizontal mergers and vertical merger. The vertical merger does not directly increase the revenue but would increase operational efficiencies and decrease costs but the horizontal merger would directly increase the market share and help the companies to diversify the products. A horizontal merger is better than a vertical merger (Pindyck and Rubinfeld, 2005).Under perfect competition, there is no market power and the firms are price takers. Here the competitive price is equal to the marginal cost. But in the case of monopoly, they have market power and can maintain a price above the price under competition and so higher the markup difference which is the difference between the price and the marginal cost, the more benefit the forms would desire from market power (Salvatore and Salvatore, 2011).

The provision of the CAN facilities by Telstra is the main and primary source of market power in the telecommunications industry.Telstra is the dominant player in the telecommunication industry in Australia. The characteristic of a monopoly is a single seller which Telstra is. The next source of monopoly power is in its power to capture the market share and thereby influence the price of the service in the market. If TV contents are made available to the other online providers then there would competition in the market as a result the market power will be reduced. The prevailing issue of losing market power would be to unable to influence the price of the service and the share of profit would decrease for the previous dominant company (Krugman and Wells, 2009).

References:

  • Abbott, M. and Ershad, A. (2011). Fundamentals of economics. Victoria, Australia: Cengage Learning.
  • Besanko, D., Braeutigam, R. and Gibbs, M. (2011). Microeconomics. Hoboken, NJ: John Wiley.
  • Boyes, W. and Melvin, M. (2011). Fundamentals of economics. Mason, Ohio: South-Western.
  • Colander, D. (2013). Microeconomics. New York, NY: McGraw-Hill/Irwin.
  • Dung, T. (2013). A microeconomics reader. New York: Routledge.