Economics Assignment: Market Structures, Cost Analysis, and Oligopoly

This economics assignment addresses key concepts including market structures, cost analysis, and specific economic models. The assignment explores the Kinked Demand Curve in an oligopolistic market, explaining how firms make pricing decisions. It discusses how firms can increase profits by following price leaders. Furthermore, it analyzes the differences between variable and fixed costs, and the benefits of economies of scale. The assignment also categorizes various businesses, such as package tour operators, 5-star hotels in Canada, travel destinations, and fast-food chains like Tim Horton's and McDonald's, based on their respective market structures (oligopoly, monopolistic competition, and perfect competition). This assignment is designed to help students understand core economic principles related to market behavior and cost management.

Running head: ECONOMICS
Economics
Name of the Student:
Name of the University:
Authors Note:

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Contents
Answer 3a:.......................................................................................................................................2
Answer 3b:.......................................................................................................................................2
Answer 4a:.......................................................................................................................................2
Answer 4b:.......................................................................................................................................2
Answer 5a:.......................................................................................................................................3
Answer 5b:.......................................................................................................................................3
Answer 5c:.......................................................................................................................................3
Answer 5d:.......................................................................................................................................3

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Answer 3a:
A firm in an Oligopolistic market faces a demand curve with a kink at the existing market price
level as per the hypothesis of Kinked Demand Curve. The elasticity of the curve is more above
the kink and significantly less below the kink as per the hypothesis.
Answer 3b:
Firms in a market will experience increase in profit by following the price leader if the price
leader sets higher prices for the products or services as the case may be. All producers or service
providers in such market stand to experience increase in profit by following the price leader.
Answer 4a:
Variable costs are costs that change with changes in the quantity of production. Such costs
include cost of raw materials, labor cost of production, indirect materials and others. All these
costs change with changes in the quantity of production. Fixed costs on the other hand are costs
that remain fixed irrespective of the quantum of production thus, these costs do not change with
change in production. Fixed costs include rent of factory, depreciation on fixed assets and other
such costs.
In the short run the variable costs increases significantly without any significant change in fixed
costs however in the long run there is significant change in fixed costs in case the scale of
operation is changed.
Answer 4b:
Economies of scale is the benefit that an organization experiences with the increase in the scale
of operation. The economies of scale helps an organization to reduce its cost per unit of

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production significantly due to number of factors including reduction in cost of procurement and
reduction in cost of supplies and others. In fact the cost of production per unit reduces
significantly with increase in scale of operation.
For example in large scale of operation an organization will be able to procure raw materials in
huge quantity resulting in significant reduction in the cost of such raw matters as often raw
materials supplier give huge discount for greater volume procurement of raw materials. In
contrast small scale of operators had to acquire small quantity of raw materials at significantly
higher prices resulting in greater cost of production. Similarly, the fixed costs and other variable
cost reduces significantly for each unit of production in large scale of production as compared to
small scale of production.
Answer 5a:
Package tour operators operate in Oligopoly market structure as there are only few service
prodders in the market providing package tour services.
Answer 5b:
Canada 5star hotels are in monopolistic market structure as there are very few who are providing
5star hotel services in Canada.
Answer 5c:
Destinations is in perfect competition market structure as there are number of destinations that
can be visited hence, there is a perfect competition in the market with many competitors.

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Answer 5d:
Tim Horton and McDonalds are in monopolistic market structure as they have a brand of their
own.

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