We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Department Of Economics Essay Sample

The whole doc is available only for registered users OPEN DOC
  • Pages:
  • Word count: 801
  • Category: economic

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Department Of Economics Essay Sample

Question 1 – Perfect Competition and Monopolistic Competition

Superior Metals Company has seen its sales volume DECLINE over the last few years as the result of rising foreign imports. In order to INCREASE sales (and hopefully, profits), the firm is considering a price reduction on luranium, a metal that it produces and sells. The firm currently sells 60,000 kilos of luranium a year at an average price of $10 per kilo. Fixed costs of producing luranium are $250,000. Current variable costs per kilo are $5. The firm has determined that the variable cost per kilo could be reduced by $0.50 if production volume could be increased by 10 percent (fixed costs would remain constant). The firm’s marketing department has estimated the arc elasticity of demand for luranium to be – 1.5.

(a) How much would Superior Metals have to reduce the price of luranium in order to achieve a 10 percent increase in the quantity sold? (b) What would the firm’s (i) total revenue, (ii) total cost, and (iii) total profit be before and after the price cut?

Question 2 – Monopoly

Zar Island Gas (ZIG) Company is the sole producer of natural gas in the remote island country of Zar. The firm’s operations are regulated by the local Energy Commission. The demand function for gas in Zar has been estimated as: P = 1,000-0.2Q where Q is output (measured in units) and P is price (measured in dollars per unit). ZIG’s cost function is:

TC = 300,000 + 10Q

This total cost function does NOT include a “normal” return on the firm’s
invested capital of $4 million.

(a) In the absence of any government price regulation, determine ZIG’s optimal (i) output level, (ii) selling price, (iii) total profits, and (iv) rate of return on its asset base.

(b) The Energy Commission has ordered the firm to charge a price which will provide it with NO more than a 12 percent return on its total assets. Determine ZIG’s (i) output level, (ii) selling price, and (iii) total profits under this constraint. Hint: The roots of the quadratic equation:


Question 3 – Oligopoly

Two companies (A and B) are duopolists that produce identical products. Demand for the products is given by the following demand function:

P = 10,000 – QA – QB

where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are:

TCA = 500,000 + 200QA + 0.5QA2
TCB = 200,000 + 400QB + QB2

Assume that the two firms act independently as in the Cournot model (that is, each firm assumes that the other firm’s output will not change). Determine the long-run equilibrium output and selling price for each firm.

Question 4 – Price Leadership – Monopolistic Competition and Oligopoly.

Over the last century, The Boeing Co. has grown from building planes in an old, red boathouse to become the largest aerospace company in the world. Boeing’s principal global competitor is Airbus, a French company jointly owned by Eads (80%) and BAE Systems (20%). Airbus was established in 1970 as a European consortium of French, German and later, Spanish and U.K companies. In 2001, thirty years after its creation, Airbus became a single integrated company. Though dominated by Boeing and Airbus, smaller firms have recently entered the commercial aircraft industry. Notable among these is Embraer, a Brazilian aircraft manufacturer. Embraer has become one of the largest aircraft manufacturers in the world by focusing on specific market segments with high growth potential. As a niche manufacturer, Embraer makes aircraft that offer excellent reliability and cost effectiveness. To illustrate the price leadership concept, assume that total and marginal cost functions for Airbus (A) and Embraer (E) aircraft are as follows:

TCA=$10,000,000 + $35,000,000QA + $250,000QA2
MCA=$35,000,000 + $500,000QA
TCE=$200,000,000 + $20,000,000QE + $500,000QE2
MCE=$20,000,000 + $1,000,000QE

Boeing’s total and marginal cost relations are as follows:
TCB=$4,000,000,000 + $5,000,000QB + $62,500Q2B
MCB=ΔTCB/ΔQB = $5,000,000 + $125,000QB

The industry demand curve for this type of jet aircraft is:

Q=910 – 0.000017P

Assume throughout this problem that the Airbus and Embraer aircraft are perfect substitutes for Boeing’s Model 737-600, and that each total cost function includes a risk-adjusted normal rate of return on investment. A.Determine the supply curves for Airbus and Embraer aircraft, assuming that the firms operate as price takers. B.What is the demand curve faced by Boeing?

C.Calculate Boeing’s profit-maximizing price and output levels. (Hint: Boeing’s total and marginal revenue relations are TRB = $50,000,000QB – $50,000Q2B, and MRB =ΔTRB/ΔQB = $50,000,000 – $100,000QB.) D.Calculate profit-maximizing output levels for the Airbus and Embraer aircraft. E.Is the market for aircraft from these three firms in short-run or long-run equilibrium?

We can write a custom essay

According to Your Specific Requirements

Order an essay

You May Also Find These Documents Helpful

Political and economic matters

Between the years of 1820 and 1848, there were several preeminent political and economic matters that had modified the American society. During this time, President Andrew Jackson was in office, and his term was well-known as the Jacksonian era. More so because it had lead to better democracy by the increase in political reforms and improvements. This had influenced principles or goals of the American...

IKEA marketing strategy

Operational process: As a multinational corporation, IKEA adopts a strategy that varies from their competitors with the sole aim of achieving a sustainable competitive advantage. The operation strategy of IKEA emphasizes of its mission of creating furniture with top-notch quality and durability at affordable prices for its consumers. IKEA founder, Ingvar Kamprad saw that most people have a simple lifestyle and live economically because people...

Economic Outlook for the Region

A prime mover is someone who has responsibilities or control over a business in order to execute a plan. Three pros that explains this in relation to CARICOM will be; 1. One of the benefits that CARICOM members got from this was being able to trade free within regions from the year 1974 when they initiated it. They removed all barriers to help this decision be...

Economic and social outlook

Millions of people are living in extreme poverty, in many cases they are denied access to proper services, energy, water, health, and above all the opportunities to improve their economic and social outlook. There is always the question of who is poor and how do we describe poverty? According to Bunting, the poor are those who struggles or barely survive with total lack of necessities...

Economic reconstruction of African post-conflict states

Aware of the fact that practically three-quarters of African states are affected by war or have war going on presently, Noting that the GDP per capita(PPP) of more than half of the African states is below 5000, Keeping in mind the successful structures and policies of the Marshall Plan of 1948 implemented in war-ravaged European countries, Further keeping in mind the Agenda 2063 proclaimed by the African Union(AU)...

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

We can't stand spam as much as you do No, thanks. I prefer suffering on my own.

Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?