Microeconomics Homework: Demand, Supply, Market Structures, Costs

This document provides solutions to a microeconomics homework assignment. The first question analyzes demand and supply curves, determining equilibrium and the impact of shifts in demand. The second question uses the demand-supply approach to demonstrate the effects of a price ceiling on the housing market, illustrating concepts like excess demand and deadweight loss. The third question examines market structures, specifically focusing on the oligopoly structure of the Quick Service Restaurant (QSR) industry in Australia, analyzing factors such as the number of firms, product differentiation, and interdependence. Finally, the fourth question presents a cost analysis table, calculating total cost, average cost, and marginal cost based on provided data.

Answer 1
a. The graph for demand and supply curves is shown below. The demand curve slopes
down while supply curve slopes upwards.
b. Using the demand-supply approach, we determine equilibrium where demand equals
supply. At this point shown by green drop lines price =$5 and quantity Q= 24. We can see
this from the table that shows Qs=Qd=24 when P= 5
c. we show new demand by (old demand +4), as shown in last coloum of the table
below:
P QD QS new demand
8 12 36 16
7 16 32 20
6 20 28 24
5 24 24 28
4 28 20 32
3 32 16 36
2 36 12 40
1 40 8 44

d. As we can see the new equilibrium is at a higher price of 5.5 and quantity of 26.
Q2. We use the demand supply approach to show a price of $1200 and 400 houses on rent
below. A ceiling is imposed as a horizontal line at 1000. No one can pay a rent or take a rent
of more than 1000. This is an effective ceiling as it is below the free market level. (Heffernan,
2015)
At P= 1000 there is disequilibrium as demand > supply. The difference is called excess
demand or SHORTAGE. Consumers demand Q1 houses on rent but owners are willing to
rent only Q2 houses. A shortage = Q1-Q2.
This makes some renters happy- Q1 renters will be happy as they pay less than 1200 now.
But those who are without a rented house= Q1-Q2 renters will be unhappy. Overall the

society suffers deadweight loss, due to this intervention in the market.
Q3.
Market structure, as taught in Microeconomics under firm theory, is based on certain
parameters. These are used to define 4 main types of structures- perfect competition,
monopoly, oligopoly and monopolistic competition. Some of these parameters include
 the number of firms in the market,
 role of government that determines the ease of entry and exit of firms
 degree of interdependence among firms,
 nature of the good (homogeneous good or product differentiation)
‘The interaction and differences between these aspects allow for the existence of
several market structures’ (Policonomics.com n.d.).
The Quick Service Restaurant (QSR) industry in Australia resembles an oligopoly
structure. This can be seen using the parameters mentioned above.
No of firms: The QSR market has only a few players- Mc Donalds, KFC, Subway,
Dominos Pizza, Hungry Jack. The market share is as follows as per media reports:
McDonald's lags at 15.2% share, Subway (29%), KFC (23%), Hungry Jack's
(16%),and Domino's Pizza (11%).
This shows that 95% of market is dominated by 5 firms.
Product differentiation: the products offer are similar, but not identical. The market is
flooded with variants of a basic product like a burger, which reveals the importance of
product differentiation in this industry. To illustrate, Dominos sells on price and
convenience platform, while McDonalds differentiates itself by invoking the health

angle. It introduced the ‘make-your-burger’ menu to entice consumers to make own
burger- that will be unique. The extent of new launches shows intense competition to
keep old consumers and attract new customers by pulling them away from rivals. .
Interdependence of firms: this is visible in the fact that most firms sell in a narrow
price band, as higher prices will cause consumers to move away to rivals.
Q4
Q TFC TVC TC AFC AVC ATC MC
0 210 0 210
1 210 20 230 210 20 230 20
2 210 30 240 105 15 120 10
3 210 50 260 70 16.67 86.67 20
4 210 90 300 52.5 22.50 75.00 40
5 210 170 380 42 34.00 76.00 80
6 210 330 540 35 55.00 90.00 160
7 210 650 860 30 92.86 122.86 320
The table is based on the formula:
TC= TVC+TFC
ATC=TC/Q
AFC= TFC/Q
AVC= TVC/Q

References
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