Economics assessment outcome 1
As Sony begins production of their new product, PlayStation move, define the following costs and explain the short run influences on each. Illustrate your explanation of each cost with a diagram. 1a.As Sony begins the production of their new product, the total cost of the firm is the total cost incurred in the production of their output, Sony total cost will include their variable and fixed cost, an example of variable cost is the raw materials. The variable cost of Sony is the cost in line with the production and sale of a product. While the fixed cost of Sony are those cost that do not change even if output increases or decreases. Example of this is software, design and development. In the short run, the cost of producing MOVE will increase at a declining rate because of the increase in an extra output due to an increase in one unit incurred in the use of its variable inputs, and therefore rise at an increasing rate due to decreasing marginal returns and the law of diminishing marginal returns. The total cost of the production of MOVE is influence by the variable cost because Sony total fixed cost is not subject to change even though there is a change in production. Sony total cost diagram will take the shape below because the shape will show the origin of the companies production level and its profit maximisation with this curve we will be able to determine the degree of and the level of market control Sony have. 1b.Average cost: this is the total cost of production per unit of output, average cost of Sony is its total cost divided by its unit of production. Average cost will take the U shape because fixed cost is incurred and marginal cost rise due to diminishing marginal production. In the short run, average cost fall initially at the start, it furthers reaches a point then it begins to increase, the average cost will fall at the beginning of the production of MOVE because the fixed factors of Sony is not subject to change, it can only take change in the variable factor e.g. raw material, labour. 1c.Marginal cost is the amount by which total cost changes due to one unit change in output, therefore this is the extra cost incurred by Sony in the production of one ,ore output. Law of diminishing returns state, the marginal cost of Sony productivity will rise as their output increases. In due course the risen marginal cost will amount to an increase in the average total cost of production.
The total cost of a firm rises because there is always a positive extra cost when a unit is made. The MC is always above 0 because there is a fixed cost. TC rises at a stable level because the extra cost of producing one more unit of MC is falling at First but beyond the point when the extra cost of each unit of MC begins to increase, then TC picks up. Marginal cost curve turns because of diminishing marginal returns, when a marginal cost begin to curve any extra unit will cost more than the unit before. 2a.Oligopoly is a market dominated by few large suppliers.in an oligopoly market the concentration is very high, in oligopoly market the leading firm takes the larger percentage of the market for example the leading firm take a large per cent of the market, Nintendo has a large % of the market because they are leading the sales with 67.5m over Sony which has 33m.in this type of market situation, marketing and advertising are very vital. Sony and Nintendo have to take account of the reaction on other firms in the market when taking a decision on market price. 2b.The characteristic of oligopolistic market are
The industry is being dominated by a few large firms each of these firm have a proportion of the market in other words they each have a substantial market power. Sony and Nintendo have a significant share of the market and also power, the market is so few that each company involve is mindful and cautious of its rival, Sony will therefore know the amount of the sales of Nintendo and vice versa, this...
Please join StudyMode to read the full document