University Economics Assignment: Task Analysis and Solutions

This economics assignment provides solutions to several tasks related to economic principles. The assignment covers topics such as fixed and variable costs, and long-run average costs. It also analyzes market structures including monopoly and monopolistic competition, exploring how firms behave in these environments. Furthermore, the assignment delves into game theory, explaining dominant strategies, Nash equilibrium, and their application in business decision-making. The solution offers detailed explanations and examples to illustrate each concept, supported by relevant references. This assignment is ideal for students seeking to understand and apply key economic principles.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

1ECONOMICS ASSIGNMENT
Table of Contents
Task 3:........................................................................................................................................2
Task 4:........................................................................................................................................3
Task 5:........................................................................................................................................4
References:.................................................................................................................................6

2ECONOMICS ASSIGNMENT
Task 3:
1.
The license fee is a fixed cost, as it does not depend on the volume of production. As
a result, it is essential for every television network to pay this cost even during if these
networks incur loss (Shepherd 2015).
2.
The cost that Samsung is going to bear, based on its new contract, is the example of
variable cost. This is because, using of power boards depends on the number of television the
company produces.
3.
During long run, a firm produces its output at a minimum point of the average cost
curve. Both Airbus and Dreamliner offer similar services to passengers. However, they have
different cost structures. Airbus successfully uses fuels in an efficient way along with sound
reduction technology as well as advanced control system (Croce 2014). On the other side,
Dreamliner has advantages based on its fuel economy as well as quick times of flight
turnarounds. Thus, passengers can choose Airbus to travel long distance while for short
distance they can select Dreamliners. For long distance, Airbus can perform at the minimum
point of its long term average cost curve while in short distance, Dreamliner can operate at
the minimum point of its long run cost curve.

3ECONOMICS ASSIGNMENT
Task 4:
1.
Following the situation, Adidas has the monopoly power on exercise running shoes.
Thus, the company can earn higher profit both in short-run and long-run. After that, other
companies also start to sell same shoes and consequently Adidas has lost its monopoly power
(Shaffer and Spierdijk 2015). In this situation, the market becomes a monopolistic
competitive one. However, the specified company can enjoy excess profit both in sort-run
and long-run in this situation.
2.
In the given situation, the demand curve of McDonald is downward lopping due to
perfectly competitive market structure (Elfenbein, Fisman and McManus 2015). Other
companies like KFC sell products which are close substitute.
However, the cattle firms have perfectly competitive market. This is because products
have perfect substitute. Each firm in this context charges higher price.
McDonalds can experience perfect competition if two outlets operate within the same
location.

4ECONOMICS ASSIGNMENT
Task 5:
1.
In game theory, dominant strategy implies the best one for player without considering
other player’s strategy. Hence, one strategy dominates the other one (Gintis 2014). Through
following a dominant strategy, player can obtain equilibrium. This strategy has two forms,
which are, weak and strict.
2.
According to the given pay-off matrix, Jim’s Coffee has a dominant strategy, which
are:
Through entering into the market, Jim’s Coffee can earn comparatively high profit
while S&C also charges high price (McCain 2014). Moreover, Jim’s Coffee can earn profit if
it enters into the market while S&C charges low price.
Therefore, according to the dominant strategy, Jim’s Coffee will start its business by
entering into the market for earning profit.

5ECONOMICS ASSIGNMENT
3.
According to the dominant strategy of S&C, the company can earn profit from its
higher price strategy even if Jim’s Coffee enters into the market. Moreover, S&C can also
earn comparatively high profit by setting higher price for coffees when Jim’s Coffee does not
decide to start its business. Thus, the dominant strategy of S&C tells to set higher price.
4.
Nash equilibrium in a game theory represents optimal outcome and consequently, one
player wants to deviate from the selected strategy keeping in mind other’s strategy (Reny
2016). Nash equilibrium can be obtained practically covering various socio-economic
aspects.
The given pay-off matrix also has a strict dominant strategy. It comes when Jim’s
Coffee enters into the market and S&C implies high price for its coffee.
5.
According to the analysis, Jim’s Coffee does not require to consider S&C’s threat.
According to the dominant strategy, S&C needs to charge high price even if Jim’s Coffee
enters into the market.

6ECONOMICS ASSIGNMENT
References:
Croce, M.M., 2014. Long-run productivity risk: A new hope for production-based asset
pricing?. Journal of Monetary Economics, 66, pp.13-31.
Elfenbein, D.W., Fisman, R. and McManus, B., 2015. Market structure, reputation, and the
value of quality certification. American Economic Journal: Microeconomics, 7(4), pp.83-108.
Gintis, H., 2014. The bounds of reason: Game theory and the unification of the behavioral
sciences. Princeton University Press.
McCain, R.A., 2014. Game Theory: A Nontechnical Introduction to the Analysis of Strategy
Third Edition. World Scientific Publishing Company.
Reny, P.J., 2016. Nash equilibrium in discontinuous games. Economic Theory, 61(3), pp.553-
569.
Shaffer, S. and Spierdijk, L., 2015. The Panzar–Rosse revenue test and market power in
banking. Journal of Banking & Finance, 61, pp.340-347.
Shepherd, R.W., 2015. Theory of cost and production functions (Vol. 2951). Princeton
University Press.