Answer To: ADDENDUM (Correction): Assessment Question Week 8: Question 2 XXXXXXXXXXCorrection Note: $2,...
Payal answered on Jun 22 2021
SOLUTION_60527
Assessment Question Week 7: Question 2: Monopolistic and Oligopoly firms
Question 1 -
(i) Use the graph below to explain the output, profit and loss conditions for monopolistically competitive firms. Show your work where appropriate in reference to the Graph.
Answer (i)-
Monopolistic competition is a form of imperfect competition and can be found in many real-world conditions. E.g.- Bars and Nightclubs, Dry cleaning and Launderettes and etc
Profit condition for a monopolistic firm- where MC curve cuts the MR curve
It can be seen from above that MC curve cuts the MR curve at Point A, at which the price from demand Curve is 20 and the quantity supplied is 40. The cost incurred for supplying 40 is area under the ATC1 curve- i.e. Yellow shaded region. Above the Yellow shaded region is the Super normal profits by the firm shaded in brown colour.
Now when the cost curve shift to ATC2, then cost in this case is all the coloured shaded region, but of that portion green, brown, and yellow is covered in the price of the product. The portion which is above the DD curve -shaded in the Red is the Loss to the firm
Supernormal Profits- Brown shaded Region
Losses – Red shaded region
ii) With examples, examine the barriers to business entry for imperfect competition firms
Answer (ii)-
Barriers to entry for Imperfect competition
It is defined as anything to block the potential entrants to enter the market in the long run and making the profit. Applied examples of Entry Barriers
Economies of scale- often times there is asymmetric in cost between the existing firm and the potential entrants.
Control of important Platforms- often times business has control of important platforms. E.g. Amazon web services – which is an established dominant service in cloud computing.
Legal Barriers – they take the form of trademarks, patents, copyrights, which prevent the potential entrants to enter in to the market.
Vertical Integration- Situation where the firm has a control over the supply and distribution of the good. For example, Price are kept high by an oil company which discourages new petrol retailers. Moreover, if a new player enters the retail petrol market, it will still have to buy petrol from one of the big oil companies, who can set a higher price, thereby discouraging entry into the petrol market.
Assessment Question Week 8: Marco-economics: Measuring the size of the economy
Question 2 –
Examine the status of the economic welfare in Goodland Republic in 2018 based on your GDP deflator, nominal GDP and Real GDP. Also, explain the reasons why it is necessary to calculate real GDP. Show your work.
Answer 2-
NOMINAL GDP- It is defined as the Market value of all final goods and services produced within the country during the given period of time.
Market Value - Price * Quantity
Real GDP - It is an indicator that measures the actual increase in goods and services and excludes the impact of rising prices. If price level is high, then it can inflate the market value of the goods and services, thereby giving the false picture of increase in GDP. Therefore, Real GDP is a better measure of Growth, as it takes into account the inflation level in the economy.
GDP Deflator- It is an indicator that measures the level of prices of the goods and services produced within the country. It is a measure of inflation level in the economy.
Economic Growth can be measured with the help of Nominal GDP and Real GDP.As seen from the above, the Nominal GDP only measures the volume of production, as it does not take into consider the price level in the economy. Higher inflation can inflate the value of the output produced in the economy, thereby giving misleading conclusions.
Real GDP on the other hand is adjusted for the inflation level in the economy. As it is adjusted for inflation, therefore any change in price level can be excluded, and the actual increase in the output can be...