Economics Assignment: Output and Costs, Perfect Competition, Monopoly

This economics assignment delves into several key microeconomic concepts. It begins by analyzing output and costs, including the calculation of total variable cost, total fixed cost, total cost, average total cost, average fixed cost, average variable cost, and marginal cost. The assignment then explores market structures, starting with perfect competition, examining profit maximization, and shutdown decisions. The analysis continues with monopoly and monopolistic competition, addressing marginal revenue, profit maximization, and the impact of new firms. Finally, the assignment investigates oligopoly, including payoff matrices, Nash equilibrium, and the application of the Prisoner's Dilemma. The assignment provides detailed calculations, graphical interpretations, and explanations of economic principles.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Course ID

1ECONOMICS ASSIGNMENT
Table of Contents
Chapter 10 Output and Costs...........................................................................................................2
Answer 1......................................................................................................................................2
Chapter 11 Perfect Competition......................................................................................................4
Answer 2......................................................................................................................................4
Answer 3......................................................................................................................................5
Chapter 12 and 13 Monopoly and Monopolistic Competition........................................................6
Answer 4......................................................................................................................................7
Chapter 14: Oligopoly.....................................................................................................................8
Answer 5......................................................................................................................................8
Reference list.................................................................................................................................10

2ECONOMICS ASSIGNMENT
Chapter 10 Output and Costs
Answer 1
1)
Labor Output TVC TFC TC ATC AFC AVC MC
1 30 500 1000 1500 50.00 33.33 16.67
2 70 1000 1000 2000 28.57 14.29 14.29 12.50
3 120 1500 1000 2500 20.83 8.33 12.50 10.00
4 160 2000 1000 3000 18.75 6.25 12.50 12.50
5 190 2500 1000 3500 18.42 5.26 13.16 16.67
6 210 3000 1000 4000 19.05 4.76 14.29 25.00
7 220 3500 1000 4500 20.45 4.55 15.91 50.00
0 50 100 150 200 250
0.00
10.00
20.00
30.00
40.00
50.00
60.00
ATC, AFC, AVC and MC
ATC AFC AVC MC
Output
Cost
2)

3ECONOMICS ASSIGNMENT
0 50 100 150 200 250
0.00
10.00
20.00
30.00
40.00
50.00
60.00
AP, MP, AVC and MC
AP MP AVC MC
Output
Cost, average and marginal product
The figure above depicts the connection between average variable cost (AVC), Marginal cost
(MC), average product (AP) and Marginal product (MP). At the initial phase of production both
average and marginal product increases. In this phase, the MP curve is above the AP curve
implying marginal product is larger than average product. At the maximum point of average
product, it is equal to the marginal product. Average product is maximum at the output level of
160. MP maximizes before the maximum point of average product. Beyond the output level of
160, both average and marginal product falls. At this stage MP is below the AP implying
marginal product is falling faster than average product (1). A similar kind of relationship is also
observed between average variable cost and marginal cost. When AVC is falling then MC is
below the AVC. That is at the initial stage of production, marginal cost is falling faster than
average variable cost. Marginal cost passes through the minimum point of average variable cost.
Beyond the minimum of AVC, AVC starts to increase. Then MC is above the AVC indicating
marginal cost is rising faster than average variable cost.

4ECONOMICS ASSIGNMENT
Chapter 11 Perfect Competition
Answer 2
1)
Profit maximizing condition for competitive firm is
Price=Marginal Cost
At P = $14,
$14 lies between the marginal cost of 13 and 15. The equilibrium output for firm is 4
Total revenue = (14 * 4) = 56
Total cost = 54
Economic profit = 56 – 54 = 2
At P = $12,
$12 lies between the marginal cost of 11 and 13. The equilibrium output for firm is 3
Total revenue = (12 * 3) = 36
Total cost = 41
Economic profit = 36 – 41 = - 5
At P = $10,
$10 lies between the marginal cost of 9 and 11. The equilibrium output for firm is 2
Total revenue = (10 * 2) = 20

5ECONOMICS ASSIGNMENT
Total cost = 30
Economic profit = 20 - 30 = 2
2)
In the competitive market, firms shut down once price goes below the minimum average cost (2).
The minimum average cost is $10. This is the shut-down price of Pat where it earns an economic
loss.
3)
3 4 5 6
10
11
12
13
14
15
16
Supply Curve
Quantity
Price
Answer 3
1)
Short run equilibrium condition in the competitive market
Price=Marginal cost
Market price = $8.4

6ECONOMICS ASSIGNMENT
Output of each firm at this price is = 350
Market output = (350 * 1000) = 350000
Economic profit or loss of each firm
Total revenue = ($8.4 * 350) = $ 2940
Total Cost = 3521
Total revenue is less than total cost. Firms thus incur an economic loss equivalent to (3521 –
2940) = $581
2)
In the long run, competitive firms operate at the minimum point of average cost
The average cost minimizes corresponding to the output of 400.
Market price equals the minimum of average cost that is $10.
If there are N no of firms in the industry then industry output would be (400 * N) = 400N
At price $10, the market demand is equivalent to
(300 *1000) = 300000
The number of firms in the long run thus can be determined as
400N = 300000 or, N = 300000/N = 750
Long run price in the market thus is $10. Market output is 300000 and number of firms in the
long run reduces from 1000 to 750.
Chapter 12 and 13 Monopoly and Monopolistic Competition

7ECONOMICS ASSIGNMENT
Answer 4
Pric
e
Quantity
demanded
Total
cost
Total Revenue
(TR)
Marginal Revenue
(MR)
Marginal
Cost(MC)
Economic
profit
10 0 1 0 -1
8 1 3 8 8 2 5
6 2 7 12 4 4 5
4 3 13 12 0 6 -1
2 4 21 8 -4 8 -13
0 5 31 0 -8 10 -31
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6
-10
-8
-6
-4
-2
0
2
4
6
8
10
Demand and Marginal Revenue Curve
Quantity demanded Marginal Revenue (MR)
Quantity
AR, MR
As shown from the above graph the marginal revenue of the monopolist is below the AR curve
or price. When a monopolist increase the amount sold in the market, there are two effects on
total revenue. The first is output effect. This implies the firm now sell more output in the market.
The other is price effect. In order to sell more output, the firm should lower the price. In case of
competitive firm, there is price effect is zero (3). The competitive firm has to sell output at the
given price. However, for a monopoly, there exists a price effect. Price has to be reduced to sell
larger output. The marginal revenue from the additional unit thus is smaller than price as the
monopolist get less revenue as compared to previous units sold.

8ECONOMICS ASSIGNMENT
2)
Profit maximization condition for monopolist
Marginal revenue=Marginal cost
The marginal revenue of the monopolist equal to the marginal cost at the output level equals 2.
At this output price is $6. Economic profit which is the difference between marginal revenue and
marginal cost thus can be obtained as
Profit=revenue−cost
¿ ( 6 ×2 ) −7
¿ 12−7
¿ 5
3)
If Minnie’s Mineral Spring is a monopolistic competition instead then demand for its product in
the long run would reduce. Being attracted by positive economic profit new firms enter the
market lowering the demand for each firm. In a monopolistically competitive market, new firms
enter the market if there is positive economic profit in the short run. Entry of new firm lowers the
market price and profit. Profit in the long run reduces to zero. In the monopolistically
competitive market Minnie has an excess capacity as firms in the long run does not utilize the all
the capacity and operates to the left of minimum average cost.
Chapter 14: Oligopoly
Answer 5

9ECONOMICS ASSIGNMENT
1)
Payoff matrix of the game
Suddies Inc
Soapy
Inc
Cheat Non-cheat
Cheat (0,0) ($1.5, -
$0.5)
Non-
cheat
(-$0.5,
$1.5) ($1, $1)
2)
The Nash equilibrium strategy of the two firm is (cheat, cheat). That is both will be at
their break-even point having 0 profit.
3)
In game theory, Prisoner’s dilemma a standardized game where two rational players
choose to non- cooperate despite the fact that cooperation makes them better off by giving them
a higher pay off (4). The above arrangement of game is similar to the Prisoner’s dilemma. Given
Suddies Inc chooses to cheat, it is optimal Soapy Inc to cheat as well as it gives a higher payoff
(0 > -0.5). If Suddies Inc choses non-cheat, then it is again optimal for Soapy Inc to cheat as it
gives a higher pay off ($1.5 > $1). Similar in the decision of Suddies Inc. Expecting the rival
firm will choose to cheat both of them ultimately chose to cheat and enjoy only break-even pay
off.

10ECONOMICS ASSIGNMENT
Reference list
1. Baumol WJ, Blinder AS. Microeconomics: Principles and policy. Nelson Education;
2015 Mar 20.
2. Sloman J, Jones E. Essential Economics for Business. Pearson; 2017.
3. McKenzie RB, Lee DR. Microeconomics for MBAs: The economic way of thinking for
managers. Cambridge University Press; 2016 Jul 18.
4. Geckil IK, Anderson PL. Applied game theory and strategic behavior. Chapman and
Hall/CRC; 2016 Apr 19