Economics Assignment: Analyzing Output, Costs, and Market Dynamics

This economics assignment delves into microeconomic principles, focusing on output and costs, perfect competition, monopoly, monopolistic competition, and oligopoly. It begins with an analysis of output and costs, including calculations of total variable cost, total fixed cost, and marginal cost. The assignment then explores perfect competition, determining profit-maximizing output levels based on marginal cost and price, and analyzing the shut-down price. Furthermore, it examines monopoly and monopolistic competition, calculating marginal revenue and economic profit, and contrasting the market dynamics of each. Finally, the assignment concludes with a discussion of oligopoly, including the application of payoff matrices and the prisoner's dilemma to analyze strategic interactions between firms, along with references to relevant economic literature.

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
Answer 1..................................................................................................................................2
Answer 2..................................................................................................................................2
Chapter 11 Perfect Competition......................................................................................................3
Answer 2......................................................................................................................................4
Answer 1..................................................................................................................................4
Answer 2..................................................................................................................................5
Answer 3..................................................................................................................................5
Answer 3......................................................................................................................................6
Answer 1..................................................................................................................................6
Answer 2..................................................................................................................................7
Chapter 12 and 13 Monopoly and Monopolistic Competition........................................................8
Answer 4......................................................................................................................................8
Answer 1..................................................................................................................................8
Answer 2..................................................................................................................................9
Answer 3..................................................................................................................................9
Chapter 14: Oligopoly...................................................................................................................10
Answer 5....................................................................................................................................10
Answer 1................................................................................................................................10
Answer 2................................................................................................................................10
Answer 3................................................................................................................................10
References......................................................................................................................................12

2ECONOMICS ASSIGNMENT
Chapter 10 Output and Costs
Answer 1
Answer 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
Answer 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 graph above reveals the relation between Average Product, Marginal Product,
Average Variable Cost and Marginal Cost. When marginal product increases average product
increases as well. During this phase, marginal product is higher than average product. Average
and marginal product equals at the maximum of average product. This correspond to the output
level of 4. After this point, both average and marginal product fall. At this phase of production,
average product is higher than marginal product. The average cost and marginal cost are the
mirror image of average and marginal product. When average product is highest then average
variable cost is the lowest. Corresponding to the lowest marginal cost, marginal product is the
highest. When both average variable cost and marginal cost are falling then average variable cost
is higher than marginal cost (1). At the minimum point of AVC, AVC equals marginal cost.
After reaching the minimum, average variable cost starts to increase. At this phase, AVC is
lower than marginal cost.

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Chapter 11 Perfect Competition
Answer 2
Answer 1
Output
(pizzas
per
hour)
Total
cost
(dollars
per
hour)
TFC TVC AVC
Marginal
cost
0 10 10 0
1 21 10 11 11 11
2 30 10 20 10 9
3 41 10 31 10.33 11
4 54 10 44 11 13
5 69 10 59 11.8 15
The profit maximizing output of competitive firm obtained where price equals marginal
cost. At price = $14, marginal cost equal price between the output level of 4 and 5. At the output
of 5, marginal cost exceeds price. Hence, optimal output is 4
Total revenue=4 ×14
¿ 56
Total Cost =54
Economic Profit=56−54
¿ 2
At price = $12, marginal cost equal price between the output level of 3 and 4. At the output of 4,
marginal cost exceeds price. Hence, optimal output is 3

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Total revenue=3 ×12
¿ 36
Total Cost =41
Economic Profit=36−41
¿−5
At price = $10, marginal cost equal price between the output level of 2 and 3. At the output of 3,
marginal cost exceeds price. Hence, optimal output is 2
Total revenue=2 ×10
¿ 20
Total Cost =30
Economic Profit=20−30
¿−10
Answer 2
Shut down price is the minimum point of average variable cost which is $10. The shut-down
price thus is $10. Pat would earn economic loss if it shuts down temporarily (2).
Answer 3
The supply curve of competitive firm sis the upward rising portion of marginal cost curve
beyond the minimum point of average variable cost.

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3 4 5 6
10
11
12
13
14
15
16
Supply Curve
Quantity
Price
Answer 3
Answer 1
In a competitive market, equilibrium of a firm is determined from the condition that price
equals marginal cost. From the demand and cost schedule, the marginal cost of each firm equals
the price corresponding to output level of 350. At this level of output, price equals $8.4.
Market output = (350*1000) = 350000
With the equilibrium level of price and output,
Total revenue=Price ×Output
¿ $ 8.4 ×350
¿ 2940

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Total Cost =3521
As total cost exceed the total revenue, firms suffer an economic loss. The economic loss is
computed as
Economic loss=Total cost−Total revenue
¿ 3521−2940
¿ 581
Answer 2
As obtained above firms in the industry earning loss in the short run. They will thus leave
the industry in the long run. Long run output of each firm in the competitive market corresponds
to minimum of average total cost (3). The minimum average cost is 10 which corresponds to
output level of 400.
Suppose there are n number of firms. Then industry output would be 400*n
As price in the long run equals minimum of average cost, price would be $10. At this price
market demand is (300 * 1000) = 300000
Therefore,
n × 400=300000
¿ , n=300000
400
¿ , n=750
In the long run market price is $10

8ECONOMICS ASSIGNMENT
Quantity of paper is 300000
Number of firms in the market is 750.
Chapter 12 and 13 Monopoly and Monopolistic Competition
Answer 4
Answer 1
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
Marginal revenue of monopolist’s is either less or equal to the price of the particular
good. Marginal revenue is defined as the revenue earned from selling one additional unit of

9ECONOMICS ASSIGNMENT
output (4). The marginal revenue thus is the difference between total revenue at the new level of
output and total revenue of the previous unit of output.
MR = P(Q)*Q – P (Q – 1) * (Q – 1) < P(Q) *Q – P(Q) * (Q-1) = P, since P (Q -1) > P (Q)
This shows marginal revenue curve of the monopolist always lie below the demand curve.
Answer 2
Profit maximization point of the monopolists is obtained where marginal revenue equals
marginal cost. From above schedule it is seen that marginal revenue and marginal cost of the
monopolist equal corresponding to the output level of 2 and price of $6. At this price and output
combination economic profit can be determined as
Economic Profit=Total Revenue−Total Cost
¿ ( $ 6 ×2 )−7
¿ 12−7
¿ 5
Answer 3
Instead of monopoly, if Minnie’s Mineral Springs is monopolistic competition then it will
face a lower demand compared to that under monopoly. This is because in a monopolistically
competitive market, there is large number of small firms operating in the market. The demand of
individual firm in the market thus is lower than market with a single firm monopolist. Unlike
monopoly market, in a monopolistically competitive market firms can freely enter or exit the
industry (2). The entry of new firm drives away all the economic profit a leaving only normal or

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zero economic profit. In Minnie operates in a monopolistically competitive market then it will
have excess capacity in the long run.
Chapter 14: Oligopoly
Answer 5
Answer 1
Payoff Matrix
Suddies Inc
Soapy
Inc
Cheat Non-cheat
Cheat (0,0) ($1.5, -
$0.5)
Non-
cheat
(-$0.5,
$1.5) ($1, $1)
Answer 2
If the game is played once, then optimal equilibrium strategy is to cheat for both Soapy
Inc and Suddies Inc. At the equilibrium both end up at their break-even point earning 0 profit.
Answer 3
Prisoner’s dilemma is an example of a standardized game that shows two rational
individual chooses not to cooperate even it seems that cooperation gives a higher pay-off to both.
The game given in the question is similar to that of Prisoner’s dilemma. Given Soapy Inc
chooses to cheat, it is optimal Suddies Inc to cheat as well as it gives a higher payoff (0 > -0.5).
If Soapy Inc choses non-cheat then it is again optimal for Suddies to cheat as it gives a higher
pay off ($1.5 > $1) (1). Similar is the case of Soapy Inc. For any given strategy of Suddies Inc, it
is always optimal for Soapy Inc to choose to cheat. Fearing cheating from other player each will

11ECONOMICS ASSIGNMENT
chose to cheat and thud both end with a lower pay off compared to that would be obtained if both
comply ($1, $1).