Economics Questions And Strategies For Small Business

Short-Run Costs and Cost Curves for Small Business

[i]

There exists a relationship between the MC and AC curves. When MC is less than AC, AC falls and when MC is greater than AC, AC increases. In addition to that MC intersects AC at the bottom point (Ward & Begg, 2016).

The convenience store has the monopolistic market structure.

Justification:

• Single sellers and huge buyers in the building.
• Lack of competition allows the store to control price.
• No product alternative.
• Entry barrier exists (Pigou, 2017).

The ABS bank has the market structure of a monopolistic competition.

Justification:

• One of the banks out of many in the area.
• Product and services are slightly different from others.
• A lot of customers in the area.
• The bank has no control over the prices.

The Auckland Airport is a natural monopoly.

Justification:

• The fix cost is very high, thus entry and exit is closed.
• There is no other competitor.
• The airport is the price setter.
• Provides service to a lot of customers.

Conditions for perfectly competitive market:

• Huge number of buyer and seller.
• Homogeneous goods and services.
• Perfect knowledge.
• No entry and exit barrier.

In real life situation, the products of the sellers are not exactly homogenous and enjoys little bit of power over the price (Sahlins, 2017). Therefore it is difficult to find a perfectly competitive market.

i]

$60= at this point, P> ATC= Super normal profit

Therefore, it is suggested to expand the business in order to rip more benefit.  

[ii]

$30: at this price point, P=MC= ATC= Normal profit

Therefore, it is suggested to carry on the business in order to run profitably.

[iii]

$20= at this point, P=MC= AVC< ATC=> Less than normal profit.

Here it is recommended to continue the business in the short run unless the price falls further below the minimum point AVC.

Air NZ is more competitive when Jet star is there to compete as a part of oligopolistic market structure. In the case of Blenheim and Gisborne, there is lack of competition and hence the price is high similar to characteristics of a monopolistic market.

Conditions for allocative efficiency:

1. Output= Marginal cost
2. Marginal benefit= marginal cost
3. Free market structure
4. Price mechanism
5. Zero deadweight loss.

The free tertiary education is a public good which does not include the social benefits in the cots structures. Therefore the objective is to allow everyone to make the most of the positive externality (Fisher, Naidoo & Ricketts, 2015). Another objective of the free tertiary education is also to differentiate between private and public education through deliberate market failure from the side of the government.

he government has taxed the production in order to include the social cost in the system. The MSC includes the private cost and the social cost of production and hence lies above MC, which includes just the private cost (Capello, 2015).

Question 3

Ban foreign buyers from certain countries to purchase NZ property:

This decision is more equitable than allocative efficient due to the intervention of the government (Corr & Plagnol, 2018).  Equitable decision allows the price of the market to remain low so that domestic buyers get benefitted.

Increase the minimum wage to $20 by 2020:

An allocative efficient wage rate can sometimes be low for a specified group of people and hence this decision ensures an equitable distribution of wealth rather than allocative distribution.

 Q2)

1. Injections > leakages= Increasing national income
2. Injections = leakages= Unchanged National income
3. Injections < leakages= Decreasing national income

CPI for the year 2017 is=

[((1000*7)+(9000*5))/((1000*3)+(9000*2))]*100= 247.6

C+I+G+(X-M)

= 400+50+100+(200-95)= $ 655 Million.

GDP in the year 2016= $ 640 Million.

Therefore the growth=

((655-640)/640)*100= 2.3 %

The nominal GDP is higher for higher population and thus does not help in the comparison between two different economies. The per capita nominal GDP is neutralises the effect of population and hence the best measure to understand the performance of an economy.

Reference

Capello, R. (2015). Regional economics. Routledge.

Corr, P., & Plagnol, A. (2018). Behavioral Economics: The Basics. Routledge.

Fisher, B., Naidoo, R., & Ricketts, T. H. (2015). A field guide to economics for conservationists. Roberts Publishers.

Pigou, A. (2017). The economics of welfare. Routledge.

Sahlins, M. (2017). Stone age economics. Routledge.

Ward, D., & Begg, D. (2016). Economics for business. McGraw-Hill.

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