Economics Assignment PDF
Added on 2020-03-28
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ECONOMICS ASSIGNMENT 1ECONOMICS ASSIGNMENTby (Name)The Name of the Class (Course)Professor (Tutor)The Name of the School (University)The City and State where it is locatedThe Date
ECONOMICS ASSIGNMENT 2PART A:1.Economies of scale are the benefits a firm obtains from expansion. In other words, as acompany grows and increases production, the company is likely to experience a decreasein its costs. Economies of scale play a significant role in forming market types such asoligopoly and monopoly. An oligopoly is a market type that consists of only a few sellersor producers. The small number of firms in an oligopoly are capable of producing at alower average cost an output level that forms a considerable portion of the wholeavailable market. The auto industry is a good example of an oligopoly that gains fromeconomies of scale. Economies of scale can also form a monopoly, a market structure consisting of onlyone seller of a specific product. The single dominant firm in a monopoly is capable ofproducing at a low average cost at a given output level that is sufficient to meet theproduct demand of the entire market. The electric power industry is an example of amonopoly that benefits from economies of scale. On the other hand, there is no scope foreconomies of scale in a perfect competition because of the many small firms producingrelatively little amounts, thus no one firm benefits from large-scale production. Similarly,a monopolistic competition, which consists of firms selling differentiated products,canlead to saturation of firms, which means that players are unable to make the most of theeconomies of scale(Referenceforbusiness.com, 2017).2.In 2002/03, the airline industry was operating as an oligopoly with only a few players inthe industry. For instance, Qantas Airways Group and Virgin Blue Airlines were the twomajor players in the airline industry in Australia. The two firms controlled the threemajor categories in the industry: domestic trunk, regional, and international (Aph.gov.au,2017). An oligopoly market situation consists of a few interdependent companies sharingthe market. The actions and reactions of competitors are taken into account when
ECONOMICS ASSIGNMENT 3forming decisions. Furthermore, there exist few barriers to entry and exit. Also,oligopolies thrive on customer loyalty hence heavy advertising is the mantra (Agarwal,2017).3.A mutual benefit by Qantas and Virgin could be established in a Nash equilibriumstrategy. Nash equilibrium is a term coined after John Nash a mathematician whodescribed an equilibrium scenario whereby each participant wins because they derive theoutcome they desire. If no participant changes their strategy, then a Nash equilibrium isachieved. For instance, Qantas and Virgin could adopt a cost-plus pricing strategy as apricing rule. In this method, a firm determines its cost of production and then adds thedesired profit margin by a markup. Cost-plus pricing can be explained through theapplication of the Nash equilibrium. If one dominant firm uses cost-plus pricing method,then the rest may follow suit so that the strategy becomes the rule (Guo, 2017).PART B: 1.France’s economy is in the third phase of the business cycle, known as contraction. Ingeneral, a contraction is a period of sluggish economic activity (The Balance, 2017). Atthis phase, the economic growth weakens, the GDP growth rate falls below 2 percent,and the unemployment rate is high and could reach 10 percent. Also, during acontraction, the inflation rate tends to be lower as evidenced by France’s economy,which is slightly below 1 percent (Tradingeconomics.com, 2017).
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