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What is the equilibrium price and quantity

 

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)

 

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