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Assignment on Principles of Economics - doc

   

Added on  2020-05-28

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Running head: PRINCPLES OF ECONOMICSPRINCIPLES OF ECONOMICSName of the StudentName of the UniversityAuthor’s Note
Assignment on Principles of Economics - doc_1
1PRINCIPLES OF ECONOMICSTable of contentsPART A...........................................................................................................................................2PART B...........................................................................................................................................3References......................................................................................................................................10
Assignment on Principles of Economics - doc_2
2PRINCIPLES OF ECONOMICSPART A1) Economies of Scale signify cost advantage arising with rising output of the commodity. Itarises owing to inverse relation between the total quantity of goods produced and fixed cost perunit (Bauer 2014). It describes that large companies have competitive advantage over thesmaller companies, which means that larger business have lower business cost. It is usuallyclassified into types- internal and external. Internal economies of scale are caused internally andarise when lower LAC (long run average cost) resulting from the company increasing in size.External economies of scale are caused outside the organization but within the industry and arisewhen LAC resulting from the sector expanding in size. Economies of scale are mainly vital in oligopoly market structure. Oligopoly denotes themarket framework in which there are fewer firms manufacturing slightly homogenous goods.The firms operating in this type of market structure have the ability to take benefit of theeconomies of scale that decrease production cost as well as prices. The aviation sector inAustralia is one example of the industry that exists in the oligopoly market structure. However,the company’s existing in this sector has the ability to manufacture different aviation parts atlower average cost.2) The current airline sector in Australia operates in duopoly market structure. Duopoly isthe basic form of the oligopoly market structure in which the market is dominated by largernumber of firms. In duopoly, two competing firms controls majority of the sector for the specificgood or service that they provide to the customers. In the past two years, the airline industry inAustralia has shown huge reform in terms of total number of players operating within thebusiness environment (Sloman, Norris and Garrett 2013). Previously, there were four players
Assignment on Principles of Economics - doc_3
3PRINCIPLES OF ECONOMICSoperating in this sector namely Qantas Airways, Ansett, Impluse airline and Virgin Blue, out ofwhich two players existed that are Qantas and Virgin Blue. These players face huge competitionfrom each other, which in turn affects their profit margin. Owing to this, they keep on changingtheir strategic behavior in order to gain competitive advantage. During the period 2002-2003,oligopolistic market form existed in Australia’s airline sector. In fact, the market share of somefirms existing during this period dropped owing to high price competition. Besides this, therewere huge industry barriers that includes- brand loyalty, high cost of infrastructure andeconomies of scale. As non -price competition also existed at this time period, the firm’s appliedalternative pricing strategy for competing in the market. However, this benefitted Qantas as ithelped them to gain highest share in the market as compared to other rivalries. But Ansett andImpluse airline companies had ceased their business operations due to this huge competition. PART B1) Business cycle refers to cycle of GDP( Gross domestic product) fluctuation around itslong term growth rate. It describes the expansion as well as contraction of economic activities,which the country experiences over certain time period. It mainly consists of four phasesincluding expansion, peak, recession, recession, trough and recovery. Expansion- In this stage, real GDP of the nation rises as indicated by high inflation rate and lowunemployment rate. Peak- It signifies the stage at which expansion phase ends and phase of contraction starts in theeconomy. Recession- In this stage, the economic factors including prices, investment, saving begins todecline, which in turn declines GDP growth rate.
Assignment on Principles of Economics - doc_4

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