List and explain the four key assumptions of perfectly competitive market structure? Draw graph and explain how a firm under perfect competition makes short-run profits.
Q1. Market Structures: Chapter 7 Perfect Competition (6 marks)
- List and explain the four key assumptions of perfectly competitive market structure? Draw graph and explain how a firm under perfect competition makes short-run profits. (3 marks)
- Using the definition of a price taker as your guide, explain why each of the following industries meets or does not meet the criteria? (3 marks)
- University Education
- Wheat Industry
- Restaurants
Q2. Market Structures: Chapter 8 Monopoly (6 marks)
- Study Figure-1 and apply your knowledge of monopoly market making a connection to answer the following questions for a firm with a monopoly power. (3 marks)
Figure 1.
- Draw the above graph and label the four curves, and identify the profit-maximising quantity and the price this monopoly firm will charge? (0.5 mark)
- What are the key characteristics under which this monopoly firm operates and identify the area of the profit-maximising output level? ( 0.5 mark)
- Which area represents profit? What is the average profit per unit, at the profit-maximising output level? (0.5 mark)
- Define deadweight loss and identify the area that represents deadweight loss as a result of a monopoly? (0.5 mark )
- Suppose the monopoly industry is now organized as a perfectly competitive industry, what would be the profit-maximising price and quantity? Explain with reasons. (1 mark)
- Why a firm is called a natural monopoly? Explain. Give an example of a public or a private sector natural monopoly and draw a graph to explain. (3 marks)
Q3. Market Structures: Chapter 9 Monopolistic Competition and Oligopoly (8 marks)
Due to coronavirus related lockdowns, social distancing and trade restriction rules to prevent the spread of virus, many monopolistic competitive industries have been adversely impacted.
- Choose a monopolistically competitive industry (such as hair dressers, retail chains, hotels, electricians, plumbers, restaurants, etc.) to discuss the firm-level impact of Covid related restrictions and various strategies used by them to stay afloat under the coronavirus situation. (Note: students will have to do some research and apply theory making a connection to real life examples). (2 marks)
- Australian banks mortgage share has increased this year driven by low interest rate and the first home buyer’s grant including the renovation grant. Figure 2 pie chart below shows the Australian banks mortgage market share of the major financial institutions in 2019-2020. Study Figure-2 and answer the following
Figure 2. Australian Banks Mortgage Market Share
Source: The Australian 9-0ctober-2020
- Apply and explain the key characteristics or assumptions of the market structure under which the banking industry in Australia operates? (2 marks)
- Do these banks in Figure -2 engage in non-price competitive behavior to increase their market share? If so, demonstrate your understanding by giving examples of non-price competitive behavior of any of the four listed banks. (2 marks)
- Related to solved problem 9.3. Suppose, hypothetically, that two highway construction companies—Build It Big and Buildings & Bridges—are bidding for a construction project with the Each firm is deciding whether to bid either $4 million or $5 million. Each firm will have costs of $2.5 million to do the work. If they both make the same bid, they will both be hired and will split the work and the profits. If one makes a low bid and one makes a high bid, only the low bidder will be hired, and it will receive all the profits. The result is the following payoff matrix. (Note: Being a government financed project, in this type of bidding the winning bid is the low bid because the bid represents the amount the government will have to pay to have the work done).
Built it Big
|
$5 million $4 million
$5 million
Building & Bridges
$4 million
- Define the term Nash Equilibrium. Is there a Nash Equilibrium in this game? Explain why? (1 mark)
- How might the situation be changed if the two companies expect to be bidding on many similar projects in future years? (1 mark)
Q4. Market Failure and Externalities: Chapter 11 (6 marks)
In normal times, owning and driving a car incurs a trade-off in terms of benefits of convenient transport, versus private and global costs from driving such as petrol, wear and tear, insurance, parking and toll charges, smog, production of greenhouse gases, health problems from exhaust fumes and traffic congestion costs. In 2020, in order to prevent the spread of coronavirus, countries all over the world adopted lockdowns severely restricting travel. As a result, public transport was limited, and people worked from home and drove their cars only for essential shopping within the regulations.
Research shows that during the pandemic lockdowns, the pollution level dropped in major global capital cities including the capital cities in Australia, compared to normal times.
https://australiascience.tv/air-pollution-over-australian-cities-during-lockdown/ https://edition.cnn.com/2020/04/22/world/air-pollution-reduction-cities-coronavirus-intl-hnk/index.html
(Note: students will have to do some research and apply theory making a connection to real life examples).
a i) Define and explain the difference between private costs and social costs of driving a car.
(1 mark)
a ii) Why is pollution caused by driving cars considered a negative externality? Draw graph and explain your answer. (2 marks)
a iii) In post-pandemic, assume that the government imposes a pollution tax of $1 per liter of petrol burnt on drivers (e.g. 20 million liters annually), to cover the full cost of pollution caused by driving, would the drivers choose to drive less or more? Who gains and who loses? Does it make the economy more efficient? Draw graph and explain your answer. (3 marks)
—————-The End —————–
Use the DADA framework when structuring your answers to all questions in economics. (Definitions: define the key terms; Assumptions: list or make assumptions as required; Diagrams: draw relevant graphs/tables and explain; and original Analysis: apply the theory to real life economic examples and explain).
- You must read the chapters each week and work on the assignment questions progressively each week—which will prevent you from asking for extensions and also submit all assessment task on time to pass the course. So please follow a weekly study
- Turnitin: Please read and understand Turnitin % information. Submit draft assignment 3-4 days before the due date to check the Turnitin score. If the percentage % is showing in orange or red, then please revise the selected sections and resubmit to TurnItIn. It is acceptable to have a TurnItIn % between 1 and less than 25.
- Concepts and key terms must be defined accurately and
- The assumptions upon which the analysis is based must be stated at the
- Diagrams must be drawn properly, correctly labelled and the relations they depict explained on the diagram and in the accompanying text of your
- Answers must be complete, addressing the specific tasks nominated in the questions. Explain clearly by applying the theory and making a connection to the real-life economic
- All reference sources must be acknowledged in-text and a list of references provided using the APA- 7 Referencing Style guide, available under Useful Resources
- Where a question has more than one part, so too should the answer. Ensure complete coverage in the analysis section of your
- As a minimum, students should reference at least one textbook for theory and
other credible sources where research is required.
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