Objectives: This assessment item relates to the course learning outcomes 1, 2 and 3 as listed in Part A.
Question 1 (22 marks)
(a) Consider the market represented by the schedule in the table below. (5 marks)
Price
Quantity demanded
Quantity supplied
$10
150
70
$20
130
90
$30
110
110
$40
90
130
$50
70
150
i) Draw a diagram. What is the equilibrium price and quantity? (1 mark)
ii) How many units will be purchased at the price of $50? How many units will be offered on the market by sellers? Explain whether there will be a surplus or shortage of units on the market. Is there a pressure on price to rise or fall? (1 mark)
iii) If the price rises due to government regulation from $30 to $40, how much will producers be able to produce and sell? Explain whether there will be a surplus or shortage of units on the market. What happens in the market if the regulation is abolished? (1 mark)
iv) If the price falls due to government regulation from $30 to $20, how
much will producers will be able to produce and sell? Explain
whether there will be a surplus or shortage of units on the market.
What happens in the market if the regulation is abolished?
(1 mark)
v) Suppose the consumers’ income increased by 20%. Draw a diagram and explain the
effect of the income change on market. (1 mark)
(b) Suppose demand (QD) and supply (QS) in a market can be expressed by these equations:
(5 marks)
QD= 200-0.5*P
QS= 100+2*P
(i) Complete the table. What is the equilibrium price and quantity? If the prevailing market
price is $60, what are the quantity demanded and the quantity supplied?
(2.5 marks)
P QD QS
$10
$20
$30
$40
$50
$60
(ii) Draw a diagram and calculate the change in the equilibrium if supply changes to QS=
75+2*P. Identify the key types of reasons why supply can increase in a market.
(2.5 marks)
(c) Utilise the demand-supply market models (for each market below) to graphically illustrate and
explain the following scenarios (in the short run). Identify for each scenario what the effects
on price and quantity are likely to be. State your assumptions.
i) The market for new models of flat screen televisions if there is a large increase in the
number of TV commercials promoting new models of televisions. (3 marks)
ii) The market for laptops if there was an increase in efficiency in the laptop
production line. (3 marks)
iii) The market for tea if the price of coffee increases. (3 marks)
iv) The market for public transport as the price of parking for small cars decreases.
(3 marks)
Question 2 (22 marks)
(a) The table below shows the cost schedule for a competitive firm.
Fixed
cost
Variable
cost
Total
cost
Marginal
cost
Average
Total cost
Average
Variable cost
Average
Fixed cost
Revenue
if Price =
$70/unit
Profit
if Price =
$70/unit
0
1
60
2
15
3
30
4
105
5
50
140
6
135
7
190
8
255
9
75
10
85
11
560
12
615
i) Complete the table. (2 marks)
ii) Using the numbers from the table above, draw a diagram showing Marginal Cost,
Average Total Cost, Average Variable Cost and Average Fixed Cost curves.
(2 marks)
iii) Comment on the shape of the curves. (4 marks)
iv) Using two rules find the profit maximising output if the price is $70. What is the
maximum profit at this level of output? Illustrate on your diagram. (3 marks)
v) Repeat the analysis to find revenue and profit/loss if the price per unit is $20. What
is the maximum profit/loss at this level of output? (3 marks)
(b) The table below shows similar cost information, but now applies to a monopoly firm.
Units
Fixed
cost
Variable
cost
Total
cost
Marginal
cost
Price per unit
Total Revenue
Marginal Revenue
Profit
0
1
60
75
2
15
70
3
30
65
4
105
60
5
50
140
55
6
135
50
7
190
45
8
255
40
9
75
35
10
85
30
11
560
25
12
615
20
i) Complete the table. (2 marks)
ii) Using the numbers from the table above, draw a diagram showing how the monopolist
makes a decision regarding production levels. (2 marks)
iii) Identify the level of output and price under the monopoly market structure. (2 marks)
iv) Explain the level of resource misallocation comparing the outcome under the
Monopoly situation with the outcome under perfect competition (where the price is
$70 per unit) (2 marks)
Question 3 (44 marks)
Please note that this question requires substantial research. A summary from the text book is not sufficient. To score well you will have to consult several academic type references.
Explain duopoly and monopoly market structures, and identify the key factors that distinguish them. (6 marks)
Choose two different industries from your home country representing duopoly and monopoly, and identify their key characteristics in relation to the factors used to differentiate between the market structures. Using information from your case studies analyse the market outcome for each case study. (20 marks)
Briefly explain the game theory and apply it to your case study. Using information from
your case studies analyse the behaviour of the firms. (18 marks)