Food Truck Market Analysis: Economics Assignment, Semester 1

This economics assignment analyzes the food truck market, focusing on the impact of changes in demand on food truck businesses. The assignment explores the effects of reduced demand on average revenue and marginal revenue, and the resulting implications for production levels. It examines the short-run and long-run effects on pricing and profitability, considering the role of the government's rent reduction. The analysis delves into the concept of the shut-down point in a monopolistically competitive market and explains the conditions under which food truck operators may decide to cease operations. The assignment references relevant sources to support its findings.

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ECONOMICS ASSIGNMENT

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Contents
Question 3..................................................................................................................................3
a).................................................................................................................................................3
b)................................................................................................................................................4
Reference....................................................................................................................................5

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Question 3
a)
Figure 1: The change in the demand for monopolistically competitive market
(Source: Coccia, 2018)
The significant changes in the tourist will reduce the demand for the food trucks. Therefore,
both the average revenue and marginal revenue will reduce for the food trucks. Therefore,
due to the significant decrease in the demand the production of the food truck will reduce. In
terms of price change, there is ambiguity as the intensity of the change is precisely not
known. In the short run, the price will reduce more and hence the cost of production will be
higher than the price (Suprayitno & Soemitro, 2018). Therefore in the short run the food
trucks will experience loss. In the long term the LRMC curve will shift to the right and hence
the price will increase little bit. Whether the firm will operate successfully in the long run
depends on the intensity of the change in demand.

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b)
Figure 2: the shut down point in the market
(Source: Coccia, 2018)
The operators are facing the loss in revenue due to the reduction in the demand. The price has
reduced so much in the market that the cost of production is now more than the revenue. The
shut down point in the monopolistically competitive market is when the AVC is higher than
the price. In this case, the AVC has not reduced much as the government has only reduced
the rent. The rent for the food truck is a part of fixed cost which does not depend on the level
of production (Suprayitno & Soemitro, 2018). Therefore, The AVC has not reduced below
the price level of the market and hence the operators are deciding to shut their business. Any
reduction in the fixed cost of the business will not help the business to continue its operation.

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Reference
Coccia, M. (2018). The origins of the economics of innovation. Journal of Economic and
Social Thought-J. Econ. Soc. Thoug.–JEST, 5(1), 9-28.
Suprayitno, H., & Soemitro, R. A. A. (2018). Preliminary Reflexion on Basic Principle of
Infrastructure Asset Management. Jurnal Manajemen Aset Infrastruktur &
Fasilitas, 2(1).