Economics Assignment- Doc
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Added on 2020-03-16
Economics Assignment- Doc
Added on 2020-03-16
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Running head: ECONOMICS ASSIGNMENTECONOMICS ASSIGNMENTName of Student:Name of University:Author Note:
1ECONOMICS ASSIGNMENTTABLE OF CONTENTPART A......................................................................................................................................2PART B....................................................................................................................................19REFERENCE...........................................................................................................................24
2ECONOMICS ASSIGNMENTPART AQPTRTCFCVCMCAC0350252500135355025252550235701002575505033510512025952040435140155251303538.75535175190251653538635210250252256040.167352453902536514055.71a) Based on the available information about perfect competition market price, quantity andtotal cost the total revenue, marginal cost, variable cost and average cost are calculated in thefollowing table:b) In the perfect completion market, the short run profit maximizing output is at wheremarginal cost is equal to marginal cost. Here both t unit 4 and 5 the MR = MC hence theequilibrium output level would be at 5 unit. c) At the profit maximising level of output the firm incurs total cost TC = 190 and earns totalrevenue TR = 175. Hence the firm is making loss of TR- TC = 175 – 190 = -15 unit
3ECONOMICS ASSIGNMENTd) The firm faces two kind of cost in the production happening in short run. Fixed cost andvariable cost. Even though the firm is seemed to make loss but the loss amount is less thantotal fixed cost. This implies that the revenue firm earns is meeting up the variable cost andpart of fixed cost. If the firm stops production then it has to anyhow pay for the full fixed costcompared to partial compensation made presently through loss. Thus the firm will continueits production in the short run even after making loss.d) In the long run the market equilibrium is P = MC= Min AC. From the table the minimumaverage cost is 38 then it can be concluded that the same is going to be price level in themarket in the long run.The demand elasticity is denotd as ed= dq/qdp/p= dq/dp . p/qGiven dq/dp . p/q = -1 dq/2 *4/40 = -1 dq = -20 So for 2 unit increase in price there would be 20 unit fall in the quantity demanded.dq = 20 dpIntegrating both sides we get:Q = 20P + c This is the derived demand curve.
4ECONOMICS ASSIGNMENTThe weekly consumption would fall by 20 unit if price rises to $4. The current amountconsumed weekly would be 20 million unit.The supply equation P = 2 + Q....1)Then equating demand and supply we get market equilibrium price and quantity.Demand equation: Q = 20P + cGiven p = $2 and Q = 40 million unit, we get the value of c = 0Then demand equation is Q = 20P........2)Putting the value of Q from 2) in 1)P = 2 + 20P-19P = 2P = -2/19Hence Q = - 40/19Here both the price and quantity in equilibrium are negative which is absurd for real marketto exist.No the market don’t exist since again the market price and quantity have negative valueswhich is absurd and not applicable in real market economy.a) Demand equation: P = 10 – Q
5ECONOMICS ASSIGNMENTSupply Equation : P = QEquating both we get the equilibrium demand and quantity.Q = 10 – Q2Q = 10Q = 5 and P = 5b) The consumer surplus is CS = ½*5*5 = 25/2 UnitProducer Surplus PS = ½*5*5 = 25/2 unitTotal Surplus = 2 * 25/2 = 25 unitIf govt. imposes tax of $ 2 per unit bought, then the market price effaced by consumers wouldrise by $2 .From the demand equation it can be said: Q = 10- (P+2)= 8-P The new equilibrium price andquantity is now:P = 8 –PP = 4, Q=4Price received by the sellers are now $4 instead of $5 and this $1 sellers are paying as tax.Consumers are paying $6 after tax.Now the total surplus is TS = 2* ½*4*4 = 16 unit. This is shared by sellers and consumersThen the deadweight loss for imposition of tax has been 25-16= 9 unit.
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