Principles of Economics | Questions and Answers
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Added on 2019-11-25
Principles of Economics | Questions and Answers
Added on 2019-11-25
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Running head: PRINCIPLES OF ECONOMICSPRINCIPLES OF ECONOMICSName of the StudentName of the UniversityAuthors Note
1PRINCIPLES OF ECONOMICSTable of ContentsIntroduction........................................................................................................................3Answer 1............................................................................................................................3Answer 2............................................................................................................................4Answer 3............................................................................................................................5Answer 4............................................................................................................................6Answer 5............................................................................................................................7Answer 6............................................................................................................................9Answer 7..........................................................................................................................10Answer 8..........................................................................................................................12Conclusion.......................................................................................................................12References.......................................................................................................................13
2PRINCIPLES OF ECONOMICSIntroductionThe purpose of this report is to analyze on the different market structure of variouscompanies. Market structure refers to the organizational features of a particular market.It focuses on those characteristics that influence the competition nature and pricing. Thevital features of the market structure includes- the number of entities, the share ofmarket of largest entities, the cost nature, product differentiation, customers turnoverand the purchasers structure in the industry. The competition that each entity faces inthe market has been segregated into various models. However, these models ofcompetition have been explained in this study. In addition, slope of marginal cost andlinkage of marginal cost to opportunity cost is also highlighted in this report.Answer 1A monopoly is the type of market structure that is characterized by one seller sellingunique commodity in the competitive market (Kirzner 2015). However, no competitionexists in this type of market and the retailer is the sole manufacturer of commoditieswith no substitutes. In this case, there are two types of monopolies- one that supplieswater and another that provides landline phone connections. These two types ofmonopolies are also referred to as natural monopoly. Natural monopoly exists in thatmarket situation where single firm supplies particular commodities at lower cost thatmight be attained by other rivalries. This competition is uneconomical as multiplemanufacturers are unable to utilize scale economics and this outcome in higher prices. Water is considered as necessity good for the householders as it has no alternatives. Ifthe water firm in this monopoly market increases water bills cost, the consumers wouldkeep purchasing the service. Therefore, tap water is considered as inelastic good asdemand for the service remains the same despite rise or drop in price of water bills. Onthe contrary, landline phones are considered as substitute product. Therefore, increasein price of landline phone by the monopolist leads to decline in demand for the product.Hence, it is deemed as elastic product as it has other alternatives. Thus, it can be notedthat water company has higher market power than landline phones company.
3PRINCIPLES OF ECONOMICSQuantityPriceMarginal CostAverage CostMNEGDFQ1Q2Answer 2KFC, Mac Donald and Hungry Jack fall under the monopolistic market structure. Inmonopolistically competitive market, large number of producers sells commodities thatare slightly differentiated from each other and thus are not close substitutes in respectof quality and brand. Moreover, in monopolistic market structure, each firm faces nobarriers in the entering and exiting the industry (Rios et al. 2013). These companiescannot limit their total production because there are huge number of competitors in theindustries of the fast food chain. As a result, collusion does not exist in the market.Although these companies manufacture their own commodities, they compete in termsof product price. These firms are considered as monopolistic as they sets their pricebased on production cost and have no perfect substitute for their meals. However, theseentities focus on rivalries and target markets in setting their product prices. Thesecompanies face few hurdles in terms of economies of scale. Owing to this, theyincrease their production scale and this leads to decline in cost of goods per output unit.In addition, advancement of technology also helps the firms in producing foods fasterand sell at less cost. This is illustrated with the help of the diagram below:
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