Business Economics Report: Assessing a Business's Market and Profits

This report delves into the economic analysis of Professor Popkiss's clock and watch repair business. Part A examines the market structure, cost functions, and profit maximization strategies under specific market conditions. It involves calculating total revenue, marginal revenue, total costs, average costs, and marginal costs to determine the optimal output level. The report also analyzes the shape of the short-run ATC curve and the conditions for long-run profitability, using relevant diagrams to illustrate the concepts. Part B introduces a different demand curve, altering the market structure and requiring a re-evaluation of profit-maximizing price and output. The report calculates the point elasticity of demand and provides advice on long-run business strategies to maintain profit levels. The analysis provides a comprehensive understanding of market dynamics, cost structures, and profit maximization in the context of a small business.

Business Economics Coursework
Professor Popkiss is a retired scientist who enjoys, in his spare time, restoring
old clocks and watches to their former glory. Now that he is retired from
academic life, he is thinking about pursuing his hobby on a more commercial
basis by setting up his own shop called ‘Time to Go’ in Milsom Street, Bath.
A former colleague, Dr Beaker, carries out some market research on Professor
Popkiss’s behalf and estimates the following information:
Average
Revenue (AR) £’s
Number of clocks
restored per week
(q)
Total Costs
0 0 400
30 10 420
30 20 480
30 30 580
30 40 720
30 50 900
30 60 1120
30 70 1380
30 80 1680
30 90 2020
Part A
(1). From the evidence provided in the table what type of market do you think Professor
Popkiss would be entering? Would you enter this market? Explain your reasoning (5 marks).
(2). Calculate Total Revenue (TR), Marginal Revenue (MR), Total Costs (TC), Average Fixed Costs
(AC), Average Variable Costs (AVC), Average Total Costs (ATC), Marginal Costs (MC) and Profits
(∏) for each level of output (q). (Write your results in tabular format) (6 marks)
(3). Explain the shape of Professor Popkiss’s short run ATC curve (4 marks).
(4). How many clocks should Professor Popkiss restore in order to earn maximum profits? And
what price should he charge for restoring them? Explain your answer (4 marks).

(5). On graph paper, plot accurately the ATC, MC, AR and MR functions for Professor Popkiss’s
business. Clearly indicate the profit-maximising price and output and shade in the area
representing profits. (5 marks)
(6). Under what conditions can Professor Popkiss earn these profits in the long run? Use
relevant diagrams and explain your answer fully (6 marks).
Part B
Assume now that Professor Popkiss faces the demand curve below (note the cost function is
the same as before):
q 0 10 20 30 40 50 60 70 80 90
p 50 48 46 44 42 40 38 36 34 32
(7). What type of market do you think Professor Popkiss is now operating in? Explain your
answer fully (3 marks).
(8). What is the profit maximising price and level of output for Professor Popkiss’s business?
Why is your answer different to that calculated in (5) above? (5 marks).
(9). What is the point elasticity of demand at this profit maximising price and level of output
and why is this information useful to Professor Popkiss? (4 marks)
(10). Advise Professor Popkiss about his options and tactics if he wishes to stay in business and
maintain this level of profits in the long run (8 marks).