Reference no: EM131979918

GENERAL INSTRUCTIONS AND CONDITIONS

1. This is an individual assignment.
2. If you have any questions or do not understand the requirements of the assignment, please see your lecturer.
3. You are expected to submit a professionally presented a word-processed document as the final assignment. This includes:
o Using the UUNZ assignment cover page for the presentation
o A title page including: Name, ID number, lecturer's name and assignment title.
o Correct spelling and appropriate use of grammar
o Pages numbered, stapled or bound, Questions correctly labelled and numbered, line spacing no less than 1.5 and no greater than double and main text using a font of 12pt size.
o Word Limit = Minimum 200 words per question, exclusive of graphs, tables and references
o A complete list of references

Question 1 Perfect Competition (Assumptions)

It is claimed that the market for various stocks and shares represent Perfect Competition. Using the assumptions used to build the perfect competition model, justify the case that shareholders of BP represent a structure that is almost the same as perfect competition.

Question 2 Perfect Competition (Profit Maximization)

New Zealand egg market represents a perfectly competitive industry where almost all the firms are identical with identical cost structures. The industry consists of many thousands of small farms and a representative firm's total cost is given by the equation TC = 100 + q² + q where q is the quantity of output produced by the firm.

Eggs are sold in cartons of 125 one dozen boxes.

The market demand for eggs is given by the equation P = 1000 - 2Q where Q is the market quantity and the market supply is represented by the equation P = 100 + Q.

a. Formulate an equation to illustrate the New Zealand egg market and calculate the equilibrium quantity and price in this market.

b. Victor owns one of the egg farms in Tauranga. The firm's MC equation is based upon its TC equation and MC = 2q + 1. Given this information and your answer in part (a), derive the firm's profit maximizing level of production, total revenue, total cost and the profit

c. Evaluate your answer in (b) and justify whether it is short-run or long-run equilibrium. Appraise the firm's situation in the long run

d. Predict the long-run equilibrium price and quantity that can be achieved for Victor's egg farm. Support your answer using the theory of the firm. Assume quantity (q) is equal to 10 boxes and Average Total Cost
(ATC) = (100+q²+q)/q

e. Given the long-run equilibrium price you calculated in part (d), predict the number of egg boxes produced in this market?

Question 3 Perfect Competition (Shut down point)

a) Evaluate the factors that drive profits to zero in perfectly competitive markets and the incentives that drive the market to a long run equilibrium.

b) Analyze the following scenarios.
i. a firm choosing to operate at a loss in the short run.
ii. a firm deciding to shut down production in the short run.

c) Evaluate the perfectly competitive market, using a graph to illustrate the short run supply curve. Explain the relationship between the short run supply curve and the scenarios discussed in parts (bi) and (bii)?

Question 4 Monopoly (Profit Maximization)

Ferry Services from Auckland to Waiheke Island in the Auckland Hauraki Gulf and the Waitemata harbour is operated by the Fullers Group of ferries. Since there are no competitors this is an example of a monopoly

Following information is provided about the cost structure of the firm
- The firm's total cost is given by the equation TC = 100 + Q² + Q (where Q is the quantity of output (number of trips) produced by the firm).
- The firm's MC equation is based upon its TC equation is MC = 2Q + 1.
- Market demand for this product is given by the equation P = 1000 - 2Q (where Q is the market quantity).
a) Fullers Ferry Services is a single price monopoly,
i. construct the marginal revenue curve of the firm
ii. illustrate the profit maximizing quantity and price.

b) Using your answer in part (a) estimate the firm's total revenue, total cost and profit at this profit maximizing price and quantity. Evaluate whether this is a short-run or long- run equilibrium.
c) Analyze the long run situation in this market

Question 5 Monopolistic Competition (Profit Maximization)

a) Using Auckland City's Café Market as an example, compare and contrast the characteristics of a monopolistically competitive market with that of perfect competition.

b) Demonstrate what happens to the equilibrium price and quantity in such a market if one firm introduces a new, improved product?

c) Justify the monopolistically competitive firm's demand curve is flatter than the total market demand curve in a monopolistic competition market.

d) Some experts have argued that there are too many brands of breakfast cereal in the market and signals a situation of inefficiency. Discuss the validity of this statement

Question 6 Oligopoly (Kinked Demand Curve)

a) Airline industry in New Zealand Provide a good example of an Oligopoly. Evaluate the specific characteristics of the oligopoly market and demonstrate the relevance of the ‘kinked demand curve' principle in oligopoly markets

b) Distinguish and evaluate the reasons as to why the OPEC oil cartel succeeded in raising prices substantially while the CIPEC copper cartel has not? Examine the conditions that are necessary for successful cartelization and outline the organizational problems that have to be overcome by cartel?