Economics Assignment: Analyzing Market Structures and Profitability

This economics assignment explores various economic concepts and market structures. The assignment includes questions on regression analysis, cost functions (including AVC and marginal product), and market equilibrium. The first question involves regression analysis to determine relationships between variables. The second question focuses on cost analysis, calculating the minimum average variable cost (AVC) and analyzing the relationship between labor input and returns. The third question examines market structures, specifically addressing the characteristics of a monopolistically competitive market for coffee shops. The final question deals with supply and demand analysis, determining equilibrium prices and quantities, and analyzing firm behavior under different market conditions. The solutions provide detailed explanations and calculations to support the answers.

ECONOMICS
Economics
Name of the Student
Name of the University
Author note

1ECONOMICS
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................6
Answer 4....................................................................................................................................6

2ECONOMICS
Answer 1
a)
0 2 4 6 8 10 12
0
200
400
600
800
1000
1200
1400
1600
1800
f(x) = 142.734848484848 x + 149.037878787879
R² = 0.779782298186568
L
L
Linear (L)
b)
Regression Statistics
Multiple R
0.88305282
9
R Square
0.77978229
8
Adjusted R
Square
0.75225508
5
Standard Error
275.585530
2
Observations 10
ANOVA
df SS MS F Significance F
Regression 1 2151414 2151414 28 0
Residual 8 607579 75947
Total 9 2758993
Coefficients Standard Error t Stat P-value Lower 95%
Intercept 149.04 178.29 0.84 0.43 -262.11
L 142.73 26.82 5.32 0.00 80.89

3ECONOMICS
c)
Q=149.0+142.73 L
At L= 8
Q=149.0+ ( 142.73∗8 )
¿ 1290.84
AP= TP
Q
¿ 161.355
MP= d (TP)
dL
¿ 142.73
d)
Whether SMC is falling or raising that depends on the Maximum points of marginal product.
When marginal product is maximum then SMC is minimum. When MP is falling then SMC
is rising and when MP is rising then SMC is falling.
Answer 2
a)
AVC=a+bQ +c Q2

4ECONOMICS
From the given result the estimated equation is
AVC=34.62−3.65Q+ 0.18Q2
The first order condition for minimizing AVC is
d ( AVC)
dQ =0
−3.65+0.36 Q=0
Q= 3.65
0.36
Q=10.14 10
Value of AVC at this minimum
AVC=34.62− ( 3.65∗10 )+(0.18∗102)
¿ 16.12 16
b)
TVC =AVC∗Q
¿ ( 34.62−3.65 Q+0.18 Q2 )∗Q
¿ 34.62Q−3.65 Q2+0.18Q3
TC=TFC +TVC
¿ 1030+34.62 Q−3.65 Q2+0.18 Q3
ATC=TC
Q

5ECONOMICS
¿ 1030
Q +34.62−3.65Q+0.18 Q2
SMC= d (STC)
dQ
¿ 34.62−7.3 Q+0.54 Q2
c)
At Q=14,
TC =1030+34.62Q−3.65 Q2+0.18Q3
¿ 1030+ ( 34.62∗14 )− ( 3.65∗142 ) + ( 0.18∗143 )
¿ 1293.2 1293
AVC=34.62−3.65Q+ 0.18Q2
¿ 34.62− ( 3.65∗14 )+(0.18∗142 )
¿ 18.8 19
ATC=1030
Q +34.62−3.65 Q+0.18 Q2
¿ 1030
14 +34.62− ( 3.65∗14 ) +(0.18∗142)
¿ 92.37 92
SMC=34.62−7.3 Q+0.54 Q2

6ECONOMICS
¿ 34.62− ( 7.3∗14 )+(0.54∗142)
¿ 38.26 38
d)
When labour input is beyond 9, then AVC start increasing implying that labour productivity
shifts from increasing return to decreasing return.
Answer 3
a)
The market of coffee shops in large city is perfectly competitive in nature. To enter the
market what is needed is just an espresso makers and some coffee beans. This makes entering
in the market easy. The free entry and exit is one of the important features of the competitive
market. However, to make its own position in the market each coffee makers should have
something unique reflecting the monopolistic characteristic of the market. Therefore, the
market is not perfectly competitive rather it is monopolistically competitive.
b)
Yes, the firm do not face a perfectly elastic demand curve.
c)
Because of free entry or exit in the market, in the long run the profit is possibly close to zero.
Answer 4
a)

7ECONOMICS
QD = 180 – 1.5P and QS = 3.5P + 40
At equilibrium
QD=QS
180−1.5 P=3.5 P+40
5 P=140
P=28
Q=180−( 1.5∗28)
¿ 138
b)
Profit=Total Revenue−Total Cost
¿ PQ−(12+ 45 Q−10 Q2 +1.5 Q3)
¿ ( 28∗138 )−(12+45∗138−10∗1382 +1.5∗1383)
¿ 3864−3757890
¿−3754026
TC =(12+45 Q−10 Q2+ 1.5Q3 )
TVC =45 Q−10 Q2 +1.5 Q3
AVC=45−10 Q+1.5 Q2
AVC minimum,

8ECONOMICS
d ( AVC)
dQ =0
−10=3Q
Q=3.33
AVC=45− (3∗10 ) +(1.5∗32)
¿ 28.5
At the equilibrium price and quantity firms incur a loss. Therefore, firms should not enter in
the market. Moreover, price is less than minimum point of AVC, it should not enter in the
market.
c)
QS = 3.5P + 10 and QD = 180 – 1.5P
At equilibrium,
QD=QS
180−1.5 P=3.5 P+10
5 P=170
P=34
Q=180−( 1.5∗34)
¿ 129
d)
Profit=Total Revenue−Total Cost

9ECONOMICS
¿ PQ−(12+ 45 Q−10 Q2 +1.5 Q3)
¿ ( 34∗129 ) −(12+45∗129−10∗1292 +1.5∗1293)
¿ 4386−3059440.5
¿−3055055
Since price is greater than the minimum point of AVC, the firm should enter the market in the
new supply condition.