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Assignment on the Economics

   

Added on  2020-03-28

13 Pages2026 Words123 Views
Running head: ECONOMICS ASSIGNMENT Economics AssignmentName of the StudentName of the UniversityAuthor Note

1ECONOMICS ASSIGNMENT Table of ContentsPart A:..............................................................................................................................................2Answer 1:.....................................................................................................................................2Answer 2:.....................................................................................................................................3Part B:..............................................................................................................................................5Answer 1:.....................................................................................................................................5Answer 2:.....................................................................................................................................6Answer 3:.....................................................................................................................................7Answer 4:.....................................................................................................................................8References......................................................................................................................................11

2ECONOMICS ASSIGNMENT Part A: Answer 1: In economics, the term economies of scale takes into account the phenomenon ofdecrease in the cost of production, on average terms, with the gradual increase in the scale ofproduction of goods and services by any enterprise. In other words, as a company goes noexpanding and increasing its production, if its average cost of production goes on decreasingeventually, then the company is said to achieve economies of scale. Economies of scale can be oftwo types, external as well as internal. Internal economies of scale usually occur when a firmitself reduces its cost of production and enjoys an increased production. This is entirely specificto the firm. On the other hand, external economies of scale occurs when the industry, of whichthe firm is a part, as a whole experiences cost effectiveness and efficiency due to increased scopeof operations (David Myers CEcD 2015). Economies of scale, though can be found in many market structures, is of largeimportance in those markets where it is good to have a natural monopoly. In several scenarios, itmay so happen that the presence of a single large firm in an industry is more efficient in terms ofcost production and pricing aspects as the presence of more than one firm may increase the costof productions for both the firms and none can enjoy economies of scale (Lewis 2013).

3ECONOMICS ASSIGNMENT Figure 1: Natural Monopoly and Economies of Scale(Source: As created by the author)If the commodity provided by that industry is of necessary or merit in nature, likeelectricity, then it is better to allow only one big firm to enjoy economies of scale and become anatural monopolist such that it can provide the commodity at a much cheaper price due to its lowcost of production. It can be seen from the above diagram. Answer 2: As can be seen from the case study provided, the airlines industry in Australia, before thecollapse of the Ansett group was more of a duopoly-structured industry with both thecompetitors Quantas and Ansett, enjoying nearly same market power and a considerable size ofthe market. However, in 2002-2003, after the collapse of the Ansett group and the emergence of

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