Impact of Joint Venture on Market

This assignment examines the potential economic effects of a proposed joint venture between Boral and CSR, two major players in the Australian construction materials industry. Students are tasked with analyzing how this merger might impact market competition, leading to potential monopoly situations. The analysis should include considerations of pricing strategies, demand aggregation, and the overall consequences for consumers and the broader market.

Economics 1
Economics

Economics 2
Table of Contents
Task 2:.............................................................................................................................................3
Task 3:.............................................................................................................................................9
Task 4:...........................................................................................................................................13
References:....................................................................................................................................19

Economics 3
Task 2:
1).
1.
The high-quality jewellery is more price elastic in comparison of a carton of milk.
2.
A tank of petrol is more price elastic as compared to a bag of oranges.
3.
Tiptop bread is more price elastic in comparison to all brands of bread.
4)
The demand curve D2 is more inelastic as compared to demand curve D1.
Working notes and Explanation:

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Price elasticity of demand can be measured by using the midpoint formula. The formula of the
price elasticity of demand as below:
=(Q 2−Q 1) ÷(Q 2+Q 1)/2
( P 2−P 1) ÷( P 2+ P 1)/2
Price elasticity of demand for demand curve D1 is as below:
(300−200)÷(300+ 200) /2
(2.50−3)÷(2.50+ 3) /2
(100) ÷(500)/2
(0.5)÷(5.50)/2
0.1
0.045
= - 2.22
Price elasticity for demand curve D2 is as below:
(225−200)÷(225+ 200) /2
(2.50−3)÷(2.50+ 3)/2
(25)÷ (425)/2
(0.5)÷(5.50)/2

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0.029
0.045
= - 0.64
On basis of above calculation, it can be stated that demand curve D2 is more inelastic as
compared to D1. It is because when the price of the product is $3 then the demand is 200 but at
the same time when the price decreased from $2.50 then demand is 225. This change represents
that change in the demand has a lesser effect due to change in the price but the effect of price is
higher. At the same time, when the price of the product is $3 then the demand is 200 as well
when the price decreases then the demand is 300 (Gans et al, 2014). It represents that due to
change in the price at a lower level than the demand of the products is higher at the D1 Curve
that means Demand Curve D1 is more elastic as compared to D2 Curve.
5.
Based on the below calculation, it can be defined that when the price of goods is $3.00 and
demand is 200 then the Revenue is $600. At the same time, when the price falls and become
$2.50 and demand D1 is 300 then the revenue of the company is $750. Whereas the price is
$2.50 and demand D2 is 225 then the revenue is $562.5 (Hubbard et al, 2012). Based on this, the
revenue of the company is higher when the D1 is 300 and price is $2.50 and revenue is lesser
when the D2 is 225 and price is $2.50.
Working Notes:
The calculation of revenue when the price is $3 and demand is 200 then revenue would be
calculated by using the below formula:

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Revenue = Price × Quantity
= $3 × 200
= $600
If the demand curve is D1 then Revenue is as below:
= $2.50 × 300
= $750
If demand is D2 then the revenue is as below:
= $2.50 × 225
= $562.5
6)
The cross-price elasticity of demand for the petrol and fuel-efficient cars would be positive if the
price of fuel increases. This is because there would be the lesser impact of the petrol price
change on the consumption of fuel as in the market fuel-efficient small cars available. Therefore,
the increase and decrease in the price of the petrol do not have a negative impact on the demand
for petrol. However, cross-price elasticity of demand between the larger not very fuel-efficient
cars and petrol would be negative (Besanko and Braeutigam, 2010). It is because when the price
of petrol increases then it affects the savings and level of consumer’s expenditure negatively as
they have to pay a large amount for purchasing of petrol for their care that is fuel inefficient. The
cross-price elasticity of demand would be positive when the price of petrol decreases and cars
are fuel inefficient.

Price
Quantity demanded and
supplied of Banana
P1
P0
Q0Q1
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7).
The cyclone damaged the crop of banana that can cause shortage of supply while increasing the
demand of banana. This increase the demand, which in turn lead the price of banana to be
increasing, as shown in below diagram:
Based on the above diagram, it can be said that there is relatively unitary elasticity of the demand
of bananas in the market. This is because the shortage of supply of banana causes a situation in
which the small change in price can cause huge change in the quantity of bananas.
8)

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In the video, bananas were called luxuries as the price of the bananas rose by a higher amount
due to the cyclone. Due to rose in the bananas price, the bananas are called the luxuries. When
the bananas would be luxuries then it has an impact on the demand and supply curves that
demand of the bananas would be higher as the upward slope in the demand curve. However, the
supply of the bananas would be a constraint as cyclone destroyed the bananas. The bananas
would be in the category of griffin good in which the demand of the goods increases with the
increase in the goods price (McTaggart et al, 2015). Therefore, if bananas are the luxuries good
then the demand would be high and supply would be a constraint.

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Task 3:
1.
The sign of new contract by the Samsung in terms of change in the price of transistors that are
used in its mobile phones. This will affect the variable cost of the company in the production of
mobile phones rather than fixed costs. It is because the price of the transistors depends on the
number of transistors quantity that used by the company. Along with this, the price of the
products dependent on their quantity that how many numbers of products company is purchasing
from the suppliers that affect only variable cost and have no impact on the fixed costs (Hubbard
et al, 2012). At the same time, the fixed cost of the company increases when the company pays
the fixed amount for the purchasing of products.
2.
If the federal government applies a levy per mobile phone providers then the fixed cost of mobile
phone providers would be higher. However, it does not influence the variable cost of the
company as government fixed the levy of $10, 00 000. It is because when the federal government
fixed the amount of levy then mobile phone providers need to pay the defined levy amount that
affects the cost of business organization. Along with this, the levy of the federal government is
fixed that would increase the fixed costs of the mobile phone provider as they need to pay $10,
00 000 to the federal government (Mcconnell, 2013). The main reason of increasing the fixed
cost of mobile is that when the government applies any levy or taxes then the company needs to
pay levy amount that enhances the cost of business operations.
3.

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The increase in the company spending on the designing of new version mobile phone would
increase the variable cost of Samsung. It is because costs of the research and development in
terms of design depends on the designing of the new products that are not fixed. In this way,
when the company invests the larger amount of the research and development activity then the
variable cost of the company would be higher and vice-versa. Along with this, cost of the new
research and development on the designing the next version mobile phone would depend on the
company investment that can affect the variable cost (Hubbard et al, 2014). In this situation, the
fixed cost of the company would be a constraint because company invests the one time in
purchasing of the equipment for the research and development operations.
4.
The option B is the example of a business firm experiencing technological change. This is
because the rearrangement of the layout of the firm factory and initial set of the inputs is the
technological changes that affect the firm's operations and productivity positively. In the
technological changes, the firm makes the changes in the technology used and factory layout,
which represents that business firm, is experiencing the technological changes. The technological
changes reduce the cost of business operations at the same time increases the firm's productivity.

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5)
A) Variable Cost = Total cost – Fixed Costs
= $30,000 – $10,000
= $20,000
B) When, Output is 10,000 then Average Variable cost and Average Fixed cost will be:
Average Variable cost = Variable cost / Quantity (Besanko and Braeutigam, 2010).
= $20,000 / 10,000
AVC= $2
Average Fixed Cost = Fixed Cost / Quantity
= $10,000 / 10,000
AFC = $1
C)
The Difference between the Average Total Cost and Average Variable Cost decreases when the
Output increases. This is because of Average Total cost = Average Variable cost + Average
Fixed cost (Mankiw, 2011).
6):
Amazon, Barns and Nobles, and other online bookstores have occupied the large portion of the
total market in Australia as well as rest of the world. The online retailing stores are dominating

Quantity
Import
Price
D
S
P
1
Q Quantity
Import
Price
A
MC
Q
AT
C
AR=MR
Jim’s StatusIndustry Status
D
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the market and causing tough competition for bricks and motors bookstores. A number of offline
stores have shut down over 15 years. This is because of the cost of selling. The cost of online
retailing stores is lower than the cost of offline stores, make them prevailed in the market. The
independent bookseller has decreased over the years due to their high cost and lower profit
margin (Case et al., 2012). This can be demonstrated in the following diagram:
Based on above diagram, it can be said that the competition in the market was increased that
reduced the profit margin of the independent seller. They suffered a loss that led them to shut
down their stores.

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Task 4:
1).
I don’t admit to the comment because of the brand management and the marketing research by
the company. it is because the information about what consumers are already buying does not
provide the actual and reliable information about the taste and preference of the customer. The
brand management and marketing research as per my concern are not redundant (Dransfield,
2013). The brand management helps an organization to differentiate it from other and
establishing an impactful and profound brand image in the mind of customers. At the same time,
the marketing research provides information about the actual taste and preference of customer
that helps in creating an innovative product. This provides the monopoly opportunity the
company in short turn (Zhu, 2012). This, in turn, can generate economic profit for the company
in short turn. This has been demonstrated in the following diagram:
2)

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Price taker can be said to the organization that accepts the ongoing or prevailing prices for the
products without affecting the marketing price. Moreover, price taker can be the individual or
organization in the market that accept the ongoing price in the market without determining its
own price. All the market players in the perfectly competitive market are the price takers
(Gillespie, 2013). This is because all players in the market sell homogeneous products and
services without feeling the barrier to entry or exit from the market. This makes the organization
to accept the ongoing price in the market.
3).
No, I do not agree with this statement that maximum profit takes place where the marginal
revenue is higher than the marginal cost. As per my opinion, the difference between the MR and
MC should be minimized and the difference between total revenue and total cost should be
higher for the maximum profit. For maximizing the profit, the revenue should be maximized
(Hirschey, 2016). The total revenue of the organization should be improved by increasing the
level of output. If the organization produces more than the quantity, at which the MR and MC
are equal. This is because the marginal revenue on the production of one additional unit
decreases and the cost increase. This increases the loss to the company.
4).
Yes, If a strategy makes an organization able to earn large payoff than its competitors
irrespective of what the competitors do for the same benefit. The dominant strategy in the game
theory is the strategy is able to provide more advantage than other strategies (Png, 2013). The
strategy, which provides higher profit is called to be the dominant strategy and the strategy,
which provides lesser profit is dominated strategy. There is a dominant strategy for the

Economics 15
Godrickporter. It should increase the advertising expenses because the increased expenses on the
advertisement can provide the profit of $16000. Therefore, it can increase the advertising budget.
5).
Yes, there is an incentive for the Gorrickporter, if it expands its advertising budget. This is
because the current profit of the Gorrickporter is $6000 while the profit of Star Corporation is
$12000. Therefore, if Star Corporation increases its advertising budget, then there is only $3000
increment in the profit of the company that is not significant. At the same time, if Godrickporter
increases its advertising budget, there is a higher incentive to the organization. This can increase
the profit of the company by $16000 that is quite higher over the current profit of the company
(Tucker, 2013). There is no significant incentive to the Star Corporation, even if it increases its
original advertising budget.
6).
Nash Equilibrium can be described as the equilibrium between the profitability of all the players
involved in the game. Moreover, no one player has the advantage of incentive over other in the
game at the Nash equilibrium point. The Nash Equilibrium is the name for the point where there
are no comparative advantages for the players in the market competition (Case et al., 2012). The
Nash equilibrium in the game between Godrickporter and Star Corporation can take place if the
Godrickporter chooses to increase the advertising budget while the Star Corporation chooses to
leave to increase in the advertising budget. This is because if godrickporter choose to increase its
advertising expenses then it will earn the profit of $8000. At the same time, Star Corporation
goes with the option to not increasing the budget then it will earn the profit of $10000. There is a
chance of Nash Equilibrium between their profit levels with this strategy.

LRACC
Cost and Price
Output
LRACC
C1
C0
Q0Q1
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7).
The economies of scale can be termed as the cut to the cost of production. Apart from this,
economies of scale are the reduction in per unit cost of the product. The economies of scale
increase as the production unit increases. Every organization wants to achieve economies of
scale in their production to achieve the objective of higher profit (Wingo Jr and Evans, 2013).
The economies of scale may be internal. If the organization expands its business separately then
it can be said as the internal growth or internal economies of scale. At the same time, when two
organizations enter into a joint venture to expand their business, this is called external growth
(Economics Online, 2017). CSR and Boral entered into the joint venture agreement. However,
there were diseconomies of scale. The following diagram is demonstrating it:

Economics 17
Based on the above diagram, it can be said that CSR and Boral merged to improve their demand
and achieve economies of scale so that they can increase their profitability. However, they faced
continuous decrement in the demand for bricks in Australia. The above diagram shows that when
the demand decreases then the long run average cost increase that reduces the economies of
scale. This decreased their economies of scale in Australia.
8).
If the joint venture of CSR and Boral is allowed for merger then it will increase the price,
quantity, and profit of the companies. It is because there is oligopoly situation in the market and
if they are allowed for the merger, this will lead the competition toward the end. They will
charge a higher price because the joint venture will cause monopoly situation in the market (Zhu,
2012). This is delineated in the below diagram:

MR
Cost and Price
Output
AC
C1
C0
Q1
MC
AR
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The above diagram is showing that the joint venture organization of Boral and CSR may charge
a higher price to take the advantage of monopoly in the market. At the same time, the demand
will be aggregated to the joint venture rather than demand for the separate organization (Besanko
and Braeutigam, 2010). Therefore, the increased demand and higher price per unit may increase
the profit of joint venture.

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Dransfield, R. (2013) Business Economics. UK: Routledge.
Gillespie, A. (2013) Business Economics. UK: OUP Oxford.
Hirschey, M. (2016) Managerial Economics. USA: Cengage Learning.
Png, I. (2013) Managerial economics. UK: Routledge.
Tucker, I. (2013) Microeconomics for Today. USA: Cengage Learning.
Besanko, D. and Braeutigam, R. (2010) Microeconomics. USA: John Wiley & Sons.
Case, K. E., Fair, R. C., & Oster, S. M. (2012) Principles of economics. UK: Prentice Hall.
Economics Online (2017) Economies of Scale. [Online]. Available at:
http://www.economicsonline.co.uk/Business_economics/Economies_of_scale.html (Accessed:
22 September 2017).
Wingo Jr, L., & Evans, A. (2013) Public economics and the quality of life. UK: Routledge.
Zhu, M. (2012) Business, Economics, Financial Sciences, and Management. Germany: Springer
Science & Business Media.
Hubbard, R., Garnett, A., Lewis, P. and O'Brien, A. (2014) Microeconomics. AU: Pearson
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Mcconnell (2013) Economics. USA: Tata McGraw-Hill Education.
Hubbard, G., Garnett, A. and Lewis, P. (2012) Essentials of Economics. AU: Pearson Higher
Education.
Besanko, D. and Braeutigam, R. (2010) Microeconomics. USA: John Wiley & Sons.

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Mankiw, N. (2011) Principles of Economics. USA: Cengage Learning.
Gans, J., King, S., Libich, J., Byford, M., Mankiw, G. and Stonecash, R. (2014) Principles of
Economics. AU: Cengage Learning.
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