Microeconomics and Macroeconomics | Assignment-1

Running head: MICROECONOMICS AND MACROECONOMICS
Microeconomics and Macroeconomics
Name of the Student
Name of the University
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MICROECONOMICS AND MACROECONOMICS1
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................4
Answer 4..........................................................................................................................................4
Answer 5..........................................................................................................................................4
Answer 6A.......................................................................................................................................5
Answer 6B.......................................................................................................................................5
Answer 7..........................................................................................................................................5
Answer 8..........................................................................................................................................8
Answer 9..........................................................................................................................................9
Answer 10A.....................................................................................................................................9
Answer 10B...................................................................................................................................10
Reference.......................................................................................................................................11

MICROECONOMICS AND MACROECONOMICS2
Answer 1
Figure 1: Economies of scale
in specialized service
Source: (Created by the Author)
The specialized service suppliers like financial consultants, lawyers and orthodontists are
found in big market because they always have economics of scale (Baumers et al. 2016). By
economies of scale, it is meant that with every unit increase in production the cost per unit
decreases. In case of above mentioned services there is no scope of reducing the time of service
by employing more resource to a particular client. In case of a legal proceeding the time required
is more or less more number of lawyers cannot reduce the time. Similarly, in case of orthodontist
completion period of service remains the same even after employing more manpower. Therefore,
employing more resource leads to fall in cost as with higher amount of resources more number of
clients can be served. Interesting case in this specialized services is that a single specialist can
handle more than one case at time since a single client does not take entire day. The services are
provided in session based structure. With more clients, more employees are required hence cost

MICROECONOMICS AND MACROECONOMICS3
accrued for hiring employees remain more or less same but cost for fixed assets get reduced
higher number of clients. Therefore, the specialized service suppliers always operate under
economies of scale. Economies of scale exist in the downwards sloping part of average total cost
(Badunenko and Kumbhakar 2017). Therefore, as long as a firm operates in the downward
sloping part of average total cost there will be economies of scale for the firm. From theory of
microeconomics, it is known that oligopoly and monopoly firms always operate under
economies of scale and these market structure are found in the case of big markets only. Hence,
specialized service suppliers are found in big markets.
Answer 2
In a perfect competitive model, there are numerous sellers and numerous buyers. The
products that are sold in a perfectly competitive market structure are homogenous in nature and
without any uniqueness (Gerakos and Syverson 2017). All the products that are sold in the
market are sold at same price. The cost structure of the firms are similar. In addition to that,
firms under perfect condition earns normal profit.
In the given case, there are two firms in the large commercial airplane market and they
are Boeing and Airbus. Boeing sells its product Boeing 747, which can accommodate 568
passengers and its price is $317.5 million. On the other hand, Airbus sells is product Airbus
A380, which can accommodate 840 passengers and sold at price $375.3 million. From, the given
information it can be said that the large commercial airplane market violates three conditions of
perfect competition model. Firstly, existence of many firms which is not the case with the
airplane market as it has only two firms. Secondly, the airplanes are sold at different price by the
two firms whereas in case of perfect competition products are sold at same prices. Thirdly,