Equilibrium Price and Quantity in Economics

This document discusses the concept of equilibrium price and quantity in economics, including the determinants of demand and supply. It also explores the effect of price changes on demand and supply. Additionally, it covers the calculation of different costs and the reasons why firms experience economies and diseconomies of scale. Lastly, it explains the sales revenue maximization model and compares it with the profit-maximizing objective.

BUSINESS
ECONOMICS

Table of Contents
SECTION A.....................................................................................................................................3
QUESTION 1..............................................................................................................................3
SECTION B.....................................................................................................................................4
Question 2....................................................................................................................................4
Question 4........................................................................................................................................5
REFERENCES................................................................................................................................7

SECTION A
QUESTION 1
A). Equilibrium price and quantity
The balance price is set in which the amount demanded is really the amount supplied. The
balance value is the cost (Heizer, 2016). This sum is called the volume of balance. The price of
balance seems to be the only sustainable price. If the market is not balanced, buyers as well as
buyers' behaviour will force the cost down to a manageable level.
The amount of equilibrium would be when the commodity on the marketplace is
insufficient or excess. Supply curve and demand curve meet price of a commodity to be
purchased is equivalent to the total delivered by the suppliers. That is to add, when price
stability suits both parties, the economy has found perfect equilibrium.
From the above table, it has been determined that the equilibrium price is £55 where the
quantity demanded is equal to the quantity supplied.
B). Main determinants of demand and supply.
Determinants of Demand
 The given commodity price.
 Buyers' earnings.
 Prices for similar products and services, supplemental and substituted as a certain object,
or substitution and exchanged rather than a commodity.
 Consumer habits or desires will boost demand.
 The preferences of the customer. This applies most commonly to a raise or a decrease in
market costs for the commodity.
Supply Determinants
 Resource/input/factors prices or product prices
 The Technology
 Taxation and grants
 Planned price
 Amount of street vendors
C). Effect of change price on demand and supply
i) A price floor of £95.00

When the price is change the demand of floor will definitely decreased as people will look into
some other product which will be beneficial for their health and can be an easy substitute of
floor. The demand and supply of other alternative items will go on increase in such conditions
(Hitt, Carnes and Xu, 2016).
ii) A price ceiling of £25.00
As ceiling is an essential, as each household need a particular ceiling so the price which is very
decent makes people to buy designer ceiling that fulfil their house need and the quantity
demanded and supplied will increased.
D) Price Elasticity of Demand
i) Price falls from £85.00 to £65.00
Price change = 20
Quantity change = 10,000
PED= 10000/20 = 500
ii) Price rises from £15.00 to £45.00
Change in price = 30
Change in quantity demanded = 14000
PED= 14000/30 = 466.67
SECTION B
Question 2
A) Calculation of different cost
Output TFC AFC TVC AVC TC AC MC
0 155 0 0 0 0 0 0
1 155 155 11 155 166 310 155
2 155 77.5
180
38.75 335 116.2
5
169
3 155 51.67 230 17.23 385 68.9 50
4 155 38.75 350 9.69 505 48.44 120
5 155 31 445 6.2 600 37.2 95
6 155 25.83 575 4.302 730 30.13 70

2
7 155 22.15 685 3.17 840 25.32 110
8 155 19.75 705 2.47 860 22.22 20
9 155 17.23 830 1.91 985 19.14 125
10 155 15.5 830 1.55 985 17.05 0
B) Explain the reasons why firms are likely to experience economies and diseconomies of scale.
Size reductions are achieved as prices per processing unit (average cost), leading to a rise in
performance (sales) (Hitt, Xu and Carnes, 2016). Size disorders are where the cost per
processing unit is raised (average cost) by increasing demand (sales). Firms usually experience
the economies and diseconomies of scale because of some reasons that are discussed below:
Scale savings for fixed costs:
1. Executive - Administrators have a set wage
2. Marketing - ads, promotional endorsements are not explicitly reliant on the volume generated
3. Engineering - tools, construction etc. was charged to a set sum
Scale savings purchase:
When acquiring manufactured goods etc., big corporations are willing to demand more
comfortable climate.
1. Bulk procurement - note it's not really the actual total per purchase unit (Great example is
supermarkets and local shop)
2. Financial – close to investing in bulk in general and more attractive interest rates this period.
Reasons for Size Savings
1. Communication - more nuanced Communications (Lee, 2018).
2. Cooperation among departments
3. X- Mismanagement - Cost growth control (non-productive costs)
4. Philosophy agent issue - assign to workers not as engaged as the holder
Question 4.
Illustrate and discuss the sales revenue maximising model and how it compares with the profit-
maximising objective?

Figure 1sales revenue maximisation model
Maximizing sales revenues are an alternative to maximising profit and arise where the MR of
selling an additional unit is negative. A small company generates tennis racks and sells the others
in cartons in 10 shops (Ivanov, Tsipoulanidis and Schönberger, 2017). The table depicts
transactions every week. The gross revenue (TR), which constitutes a net profit of £3,000, is
greatly increased at a rate of £50 each bracket for revenues of 60 cartels. Marginal benefit would
mean zero for optimising income. As the value for their output, as decided by consumer
availability and quality, is to be agreed by a fully competitive organisation, they cannot decide
the price they charge. Instead, the intensely competitive business may opt to sell any production
at the very same value. This means that the company faces an entirely elastic continuum of cost
of production: customers are ready to purchase different production units at a retail price again
from company. If the fully competitive company selects the quantity to be produced, then the
sum will decide the overall sales, the total expense and eventually the level of income of the
business alongside prizes that occur on the marketplace for dependent variables and independent
variables.

REFERENCES
Books and Journals
Heizer, J., 2016. Operations management, 11/e. Pearson Education India.
Hitt, M.A., Carnes, C.M. and Xu, K., 2016. A current view of resource based theory in
operations management: A response to Bromiley and Rau. Journal of Operations
Management, 41(10), pp.107-109.
Hitt, M.A., Xu, K. and Carnes, C.M., 2016. Resource based theory in operations management
research. Journal of Operations Management, 41, pp.77-94.
Ivanov, D., Tsipoulanidis, A. and Schönberger, J., 2017. Global supply chain and operations
management. A Decision-Oriented Introduction to the Creation of Value.
Lee, C.K.H., 2018. A review of applications of genetic algorithms in operations
management. Engineering Applications of Artificial Intelligence, 76, pp.1-12.