Economics ass 7
Assignment 7
QUESTION 1 Consider the data for this company:
No. of Workers. Output
0 0
1 20
2 50
3 90
4 120
5 140
6 150
7 155
Complete the marginal product column. What happens to marginal product as output increases? Why?
Let’s suppose that the company has fixed costs of $150 and labour is its variable cost. Each worker costs $75. Complete the table for total costs.
Complete Average Total Costs.
Complete Marginal Costs. Compare them to the marginal product column. What is the relationship between these columns? Explain.
Draw a graph to show the Marginal and Average Total Cost curves.
If the price were 4 calculate how many units the company would produce and how much profit the company would make. Show your workings.
Now do the same for a price of 3. What should the company do in this situation? Why?
QUESTION 2
Consider the traditional music industry – before the emergence of the Internet.
a) Identify the main costs of the music industry. Are these fixed or variable costs? Explain.
b) Compare the marginal cost of producing an old vinyl record or a CD and the price they were sold for? Why was there such a big difference? Why did people pay this price?
c) Taking this into consideration explain why the Internet has had such a big impact on the music business from both the costs and the revenues point of view.
d) Do you think business models such as itunes and spotify can make the music business profitable again? Why/Why not?
QUESTION 3
Here is a company’s cost data:
Output FC VC TC MC ATC AVC
1 100 130
2 70
3 220
4 50
5 65
6 50
7 80
Complete the table and draw the MC, ATC and AVC curves on a graph
The demand function for this market is Qd=1000-10p
Draw the demand curve for this demand function onto the graph. On the x-axis go from 0 to 1000 in gaps of 100. On the y-axis go from 0 to 100 in gaps of 10.
Imagine there are 100 companies in this market and they all have the same cost structure as the one in the table above.
Draw the supply curve onto the graph.
What is the market equilibrium price?
How many units would the company make at this price?
How much profit would it make?
QUESTION 4
Compare the market structures of perfect competition and monopolistic competition.
What are the main differences?
Choose an industry with various producers. Draw a positioning map for these companies and explain how they differentiate their products.
Research the prices of the different producers. What do these prices show us about the ability of each company to set the prices of their products?
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