Bussiness economicsINTERNATIONALISATION, INFORMATION FLOWS AND NETWORKING IN RURAL AND REGIONAL...

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Bussiness economicsINTERNATIONALISATION, INFORMATION FLOWS AND NETWORKING IN RURAL AND REGIONAL FIRMS: IMPLICATIONS FOR REGIONAL DEVELOPMENT  1  Microeconomics Assignment    Semester 1, 2019    Business Economics BUECO5903    Prepared by Paul McPhee   (Course Coordinator)    Checked by David Spiers  (Caretaker / Moderator)   Instructions for Candidates: 1. Choose any five (5) of the following eight (8) questions;    2. Each question is worth ten (10) marks;    3. This assignment comprises 15 per cent of total assessment;    4. Please type your assignment;    5. All diagrams and direct quotations must be referenced as  per the course description specified method.    6. Please use the numbering system as provided on this  document to identify the questions.  2  Question 1: (a) Illustrate and explain using diagrams how a single seller within the market can maintain an  inefficient allocation of resources; (2.5 marks for the diagram plus 2.5 marks for the explanation) (b) Are there any advantages to a single market seller and how do they compare to its perceived  disadvantages. (2.5 marks for identifying advantages and 2.5 marks for identifying disadvantages) Question 2: (a) What market structure is used to benchmark allocative efficiency and why do we use it?   Illustrate and explain using a diagram (2.5 marks for the diagram plus 2.5 marks for the explanation) (b) Why and how do monopolistically competitive firms fail to achieve allocative efficiency?   Illustrate and explain using a diagram. (2.5 marks for the diagram plus 2.5 marks for the explanation) Question 3: (a) Assuming a constant wage rate, illustrate and explain using a diagram, how a firm’s  marginal costs of production are at a minimum when its marginal product is at a maximum; (2.5 marks for the diagram plus 2.5 marks for the explanation) (b) Illustrate and explain using a diagram how a firm’s long-run average cost curve comes into  existence from a multi-plant operation; (2.0 marks for the diagram plus 2.0 marks for the explanation) (c) Identify and describe the significance of the various portions of this diagram.  (1 mark)    Question 4: (a) You are examining and reporting on the market performance of a very small number of  firms that are known to often collude in setting output prices and quantities.  Illustrate and  explain using a diagram what affect this behaviour is most likely to have on the allocation of  factors of production. (2.5 marks for the diagram plus 2.5 marks for the explanation)  3  (b) What will happen if one of these firms cheats on the others in some way?  Illustrate and  explain using a diagram. (2.5 marks for the diagram plus 2.5 marks for the explanation) Question 5: (a) Illustrate and explain using diagrams, the difference between long run supply in a constant  cost individual firm and industry and an increasing cost firm and industry. (Firm level diagrams 2.5 marks; industry level diagrams 2.5 marks, firm level explanation  2.5 marks, industry level explanation 2.5 diagrams) Question 6: Illustrate and explain using diagrams, two (2) market mechanisms that are used for controlling  pollution as an externality. [2.5 marks for each diagram (total of 5 marks) plus 2.5 marks for each explanation (total of 5  marks)] Question 7: (a) Explain whether you agree or disagree with the following statement and why:     “Regardless of whether the short run or the long run is being considered, a firm should  continue to operate as long as its price is greater than its average variable cost”. (5 marks) (b) Use diagrams to illustrate and explain why you agree or disagree with the following  statement: “When marginal revenue equals marginal cost, total cost equals total revenue and the firm  makes zero profit”. (2.5 marks for diagram plus 2.5 marks for explanation) Question 8: The  following diagram shows the cost curves of a firm under perfect competition.  4  0 1 2 3 4 5 6 7 8 9 10 11 12 0 10 20 30 40 50 60 70 80 90 100 MC MC AC AVC $ Quantity    (a) How much will the firm produce in order to maximise profits at a price    of $8 per unit?                                                                                        ....................... (1/2 mark)  (b) What will be its average cost of production at this output? ........................................ (1/2 mark)  (c) How much (supernormal) profit will it make? ............................................................ (2 marks)  (d) How much will the firm produce in order to maximise profits at a price    of $5 per unit?                                                                                       ........................ (1/2 mark)  (e) How much (supernormal) profit will it make? ............................................................ (2 marks)  (f) How much will the firm produce in order to maximise profits at a price    of $4 per unit?                                                                                       ........................ (1/2 mark)  (g) What will be its profit value be now? .......................................................................... (2 marks)  (h) Below what price would the firm shut down in the short run? ..................................... (1 mark)  (i) Below what price would the firm shut down in the long run? ...................................... (1 mark)

Dr. Smita · Accepted Answer

Micro Economics
Micro Economics
[Type the document subtitle]
Students Name
01-May-19
Question1   Single Seller: Monopoly
(a) Monopoly and allocative efficiency:
The market structure where a single seller operates is known as Monopoly and a producer is known as a monopolist. A monopolist has always been criticized on the grounds that they have control over the market and has the power to exploit the consumers.
A monopolist decides to produce at a point where MR=MC but charges a price at market demand curve or average revenues.  The monopolist earns supernormal profits leaving no room for allocative efficiency in the market.
(b) Advantages to the single seller market:
Single seller markets or monopolies have excess funds because of their supernormal profits. These excess funds earned by a monopolist can be invested in other areas so as to increase production and operational capabilities:
· Monopoly avoids duplication and hence wastage of resources.
· A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers.
· Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly.
· Monopolies may use price discrimination which benefits the economically weaker sections of the society. For example, Indian railways provide discounts to students travelling through its network.
· Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition.
Disadvantages of Monopolies: The disadvantages of monopolistic structures are well known since ages. They are:
1. Poor level of service.
2. No consumer sovereignty.
3. Consumers may be charged high prices for the low quality of goods and services.
4. Lack of competition may lead to low quality and outdated goods and services.
Question.2 
(a) Market Structure used as a benchmark for allocative efficiency: Perfect Competition
Solution:  Perfectly competitive market structure is considered as the benchmark for allocative efficiency. Perfectly competitive markets work on the principle of marginality. The producer decides to produce at the point where MR=MC i.e. when marginal revenue equates marginal cost.
This is because the price that consumers are willing to pay is equivalent to the marginal utility that they get. Therefore the optimal distribution is achieved when the marginal utility of the good equals the marginal cost. There are no deadweight losses in the perfectly competitive markets. 
(b) Monopolistic firms fail to achieve allocative efficiency:
Monopolistic competitive producers always work on the principle of earning profits and charge a price higher than its marginal cost.

INTERNATIONALISATION, INFORMATION FLOWS AND NETWORKING IN RURAL AND REGIONAL FIRMS: IMPLICATIONS FOR REGIONAL DEVELOPMENT 1 Microeconomics Assignment Semester 1, 2019 Business Economics BUECO5903...

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