Economics Assignment: Theory of Cost, Market Structures, MC, ATC and AVC Concept, Comparative Analysis, Government Intervention

Running Head: ECONOMICS ASSIGNMENT.
ECONOMICS ASSIGNMENT
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ECONOMICS ASSIGNMENT.
Table of Contents
LO 3: SECTION A- Business Decision making..........................................................................1
QUESTION ONE: THEORY OF COST....................................................................................1
QUESTION TWO: MARKET STRUCTURES..........................................................................5
QUESTION THREE: MC, ATC AND AVC CONCEPT...........................................................7
QUESTION FOUR: COMPARATIVE ANALYSIS..................................................................8
LO 4: SECTION B: The Role of Government in markets.........................................................9
QUESTION ONE: GOVERNMENT INTERVENTION IN MARKET....................................9
QUESTION TWO: COST AND BENEFIT CURVES.............................................................11
References......................................................................................................................................12
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ECONOMICS ASSIGNMENT.
LO 3: SECTION A- Business Decision making.
QUESTION ONE: THEORY OF COST.
The cost structure of Red T-shirt company is presented in the Table below.
Table 1: Cost Structure
Factors of
Production
(Labour)
Output
(Q)
Total
Fixed
Cost
Total
Variable
Cost
Tota
l
Cost
Average
Cost
Marginal
Cost
Average
Variable
Cost
Average
Fixed
Cost
No. of
Workers in
a day
No. of T-
shirts
produced
in a day
0 0 25 0 25 ∞ - 0 ∞
1 4 25 25 50 12.50 6.25 6.25 6.25
2 10 25 50 75 7.50 4.17 5.0 2.50
3 13 25 75 100 7.69 8.33 5.77 1.92
4 15 25 100 125 8.33 12.50 6.67 1.67
5 16 25 125 150 9.375 25.0 7.8125 1.5625
i. Complete the table above.
a. Total Cost is given as 25 that correspond to output 0, this therefore implies that Total
Fixed Cost is also equals to 25 because Total Cost = Total Fixed Cost + Total Variable
Cost (Zhang, 2018).
Therefore, TC =TFC +TVC . Total Fixed Cost does not vary its constant throughout the
production period hence the Total Fixed Cost here remain constant that is 25 (Borenstein,
2016).
25 = TFC + 0
25 + 0 = TFC
TFC = 25
b. TC=TFC +TVC . Total cost is the summation of Total fixed cost and Total variable cost
(Zhang, 2018).
For the worker/day 1 the TC = 25 + 25 = 50
2 the TC = 25 + 50 = 75
3 the TC = 25 + 75 = 100
4 the TC = 25 + 100 = 125
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ECONOMICS ASSIGNMENT.
5 the TC = 25 + 125 = 150
c. AC=TC
Q where, AC is Average Total Cost is defined as the Total Cost divided by
output (Talley, 2017). TC is Total Cost and Q is the Output.
For the worker/day 0=25
0=∞
1=50
4=12. 5
2=75
10=7 .5
3=100
13=7 . 69
4=125
15=8 .33
5=150
16=9 . 375
d. MC=Δ TC
ΔQ MC is derived from dividing a unit change in Total cost per by a unit
change in output (Pigou, 2017).
For the worker/day 0=−
1=50−25
4−0=6 . 25
2=75−50
10−4=4 . 17
3=100−75
13−10=8 . 33
4=125−100
15−13=12. 5
5=150−125
16−15=25
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