Week 7

Question 1

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. Is this market likely to be​ competitive?

Answer 1

​No, even though there are many firms in the​ market, there is one firm large enough to influence the market price.

Question 2

Wheelies Bicycles is experiencing substantial growth in sales and has decided to hire more employees. However, they are yet to invest in additional equipment. Other things remaining​ unchanged, what is likely to happen to the marginal product of each new worker in the short​ run?

Answer 2

It will be increasing at a decreasing​ rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.

Question 3

Ananta earns $80,000 per year from working as a self-employed painter. However, he is qualified to work as a university lecturer, where he could earn $120,000 per year.

Rob earns $80,000 per year from his online gaming business. Rob has no qualifications and could not earn a higher wage elsewhere.

Ananta’s economic profit is higher than Rob’s.

Answer 3

False

Question 4

Why do large organisations experience diseconomies of scale?

Answer 4

Coordination problems arise such as difficulty in communication

Question 5

Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-Shirt is $20. A producer in this market has the following total cost and marginal cost functions.

TC(q) = 450+0.1 q^2
MC(q) = 0.2q

Which part of the total cost function represents the firms averhae variable cost

Answer 5

0.1q

Question 6

Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-Shirt is $20. A producer in this market has the following total cost and marginal cost functions.

TC(q) = 450+0.1 q^2
MC(q) = 0.2q

For this firm to maximise profits it should produce how many T-shirts?

Answer 6

Remember that in order to maximize profits a firm in a competitive market will produce where MR = MC.
Also remember that in a perfectly competitive market P = MR. Use these facts to find the profit-maximizing output level.

Question 7

Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-Shirt is $20. A producer in this market has the following total cost and marginal cost functions.

TC(q) = 450+0.1 q^2
MC(q) = 0.2q

When this firm produces the​ profit-maximizing quantity of​ T-shirts, its average total cost equals

Answer 7

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Question 8

A list of economic terms is shown below. Match each term with its definition.
A. Production
B. Physical Capital
C. Short run
D. Long run
E. Marginal product
F. Specialization
G. Law of diminishing returns

Answer 8

g
  Increases in inputs eventually lead to less additional output.

b
  Machines and equipment that can be used for production.

c
  Period of time when at least one of a​ firm’s inputs is fixed.

a
  The process of transforming inputs into output.

e
  The change in total production associated with using one more unit of input.

f
  The result of workers developing a certain skill set in order to increase total productivity.

d
  Period of time when all of a​ firm’s inputs can be varied.

Question 9

The graph on the right shows the cost curves for a random firm competing in a perfectly competitive market.
Given the shape of the​ curves, we know that curve A represents​ __________, curve B represents​ __________, and curve C represents​ _________.

Answer 9

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