Economics Assignment

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Chapter: 5

Question: Categorize each seller below on the basis of the type of market it operates in. Explain each of your answers: a.A Cattle farmer
b.A Computer market
c.A picture framing shop is a large metropolitan area.
d.A seller of Canadian dollars in a foreign currency markets. e.A life insurance company
f.A liquor store in a remote village
g.A visual Artist
h.A Country that produces a valuable radioactive mineral found in no other part of the world.

Answer to the question no. 1
a.A Cattle farmerThis is a Perfect Competition Market. There are many sellers and buyers, product is standardized and there are almost no entry or exit barriers. b.A Computer marketMonopolistic Competition Market: Computer knowledge is required to be in this market, there are fairly number of buyers and sellers. This is a service oriented market. There are almost no entry or exit barriers. c.A picture framing shop is a large metropolitan area.Monopolistic Competition: Only people with picture framing skill and have good taste of picture are sellers and buyers in this market. It is a service oriented industry and there are ways to differentiate by providing superior quality of service. There are almost no entry or exit barriers. d.A seller of Canadian dollars in a foreign currency markets.It is a Perfect Competition market with standardize product and there are many buyers and sellers. There are almost no entry or exit barriers. e.A life insurance companyIt is an Oligopoly. Entry and exit is regulated, product is almost standardized. There are entry or exit barriers. f.A liquor store in a remote villageIt is a Monopoly: Being in this business required special license from government authority. In a remote village government would like to regulate the item by permitting a single seller in the business (depends on cultural background of a country). As such entry and exit will be difficult. Product is standardized. g.A visual ArtistIt is a Monopolistic/ Oligpoly Competition: Sellers can differentiate their product by creativity and there are only few sellers and buyers in this market. h.i.A Country that produces a valuable radioactive mineral found in no other part of the world.Monopoly Market: Access to require resource is restricted to only on country; price of the product is not set by market equilibrium set by function of demand and supply.

Answer to the question no. 2.a

12345678
Price $/kgQuantity kg/MonthTotal RevenueTotal CostMarginal RevenueMarginal CostAverage CostProfit 0.4810048410.480.230.417
0.4820096570.480.160.2939
0.48300144770.480.20.2667
0.484001921060.480.290.2786
0.485002401450.480.390.2995
0.486002881990.480.540.3389
0.487003362940.480.950.4242
0.488003845010.482.070.63-117

The gardener is operating in a Perfect Competition Market. The market price is set at Marginal Revenue point. The gardener is selling any quantity at a price set by market, which is here $ 0.48. The gardener is a price taker only.

Answer to the question no. 2.b
The rule of Profit Maximization is the point where: Marginal Revenue =Marginal Cost. In the above table we can see at an output point of 500 kg, the MR and MC is closest. Moreover if we look at the profit column we can see highest profit amount is $ 0.95 which corresponds to output quantity of 500kg.

Answer to the question no. 2.c
On graph, the profit maximization point is indicated as b where corresponding output is in between 500 to 600 kg. The profit area is indicated as a, b, c & d. As the average cost remains below MR, the business is making profit.

Answer to the question no. 2.d
Average Cost at Profit Maximization output is 0.29. At this price the gardener will reach at breakeven point of his business. Output is 500kg.

Answer to the question no. 3.a

Total Revenue and Total Cost Curve

Answer to the question no. 3.b...
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