Maria Van Gelder
Jones International University
Economic Theory and Application
Assignment 4.1

Technical Questions: 1, 3 and 5 of Chapter 9 & 10

Chapter 9
1. The following graph: (not able to recreate, but in the text), shows a firm with a kinked demand curve a. What assumption lies behind the shape of this demand curve? The kinked demand curve assumes that other firms will follow price decreases and will not follow price increases. For instance, in an oligopoly model, based on two demand curves that assumes that other firms will not match a firm’s price increases, but will match its price increases. The kinked demand curve model of oligopoly implies that oligopoly prices tend to be “sticky” and do not change as much as they would in other market structures given the assumptions that a firm is making about the behavior of its rival firms. Kinked demand was an initial attempt to explain sticky prices. It is an economic theory regarding oligopoly and monopolistic competition.

b. Identify the firm’s profit-maximizing output and price. In Figure 9.1 in the textbook, the firm’s profit-maximizing output and price is when there is an increase in price over the average marginal cost (the difference between p1 and the point vertically down from there that cuts the MC curve) Profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this definition. The total revenue total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue – marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost. c. Use the graph to explain why the firm’s price is likely to remain the same, even if marginal costs change. If marginal costs increase or decrease within the discontinuous range of the...

...Plotting this gives us Total Cost, Total Variable Cost, and Total Fixed Cost.
Given that total fixed costs (TFC) are constant as output increases, the curve is a horizontal line on the cost graph. The total variable cost (TVC) curve slopes up at an accelerating rate, reflecting the law of diminishing marginal returns. The total cost (TC) curve is found by adding total fixed and total variable costs. Its position reflects the amount of fixed costs,...

...1. DemandCurve for Oligopolistic Market.
Above the kink, demand is relatively elastic because all other firms' prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and the kink point. This is a theoretical...

...• The demandcurve is flatter (more horizontal) the closer the substitutes for the product and the less diminishing marginal utility is at work for the buyers.
• The dependent variable in demand analysis is the quantity (the number of units) sold. The independent variables are price, income of buyers, the price of substitutes, and the price of complements.
• An increase in income shifts the demandcurve to the right for...

... Lesson 4
a. In lesson 4 we write the budget constraint as I = XPX + YPY. Write this as a linear equation with Y on the left as in Y = … . What is the slope of this line. Explain this.
Px*X+Py*Y=I
Therefore Py*Y=I- Px*X
Y=I/Py-(Px/PY)*x
This equation has the linear format of y=b+mx,and thus, the slope of the budget line is –(Px/Py) The slope of the Budget Line tells how much of the good on the y axis we must give up to buy one more unit of good on the x...

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Question 4 (Page 251)
a) For any firm, profits are maximized at that level of output where marginal revenue equals marginal cost. In the diagram, MR equals MC at output of Q0. At this level of output, the monopolist charges the price p4.
b) Profits per unit are equal to price minus average total cost. Thus the profits are the rectangle defined by the point’s p2p4BC. Since price exceeds average total cost, the monopolist’s profits are positive....

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Assignment1: Demand Estimation
Due Week 3 and worth 200 points
Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April.
For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent...

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Assignment1: Demand Estimation
By
Stephanie Airhart
Eco 550
Dr. Camille Castorina
04/25/2016
Banquet® Frozen Meals
Founded in 1940, Banquet is the maker of a leading brand of frozen microwaveable dinners. Started by a schoolteacher that needed extra money, the company began in an old barn selling products to the local merchants. Banquet has been providing excellent meals to families all over the world. The line of food...

...Describe the Influence of Two Contrasting Economic Environments on Business Activities with a Selected Organisation
Growth
Within my selected organisation, Tesco, there are 2 important economic environments that have an influence on business activities. Both economic environments will have a different way on affecting Tesco. The economic environments are growth and recession. Economic growth occurs when more goods are being produced and consumed, and incomes are rising. A growth company...

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