Question 1 (200 words)
(a) Farmer Fitzgerald was heard saying "My farm is profitable, but I can't afford to stay in business any longer. I am going to sell the farm and teach at the local TAFE College.' In what sense is farmer Fitzgerald using the word profitable here? Why do you think his sentiment would be unconvincing if he is referring to economic profits?
(b) Thomas Malthus reasoned that because the amount of land is fixed, as population grows and more and more labour is applied to land, the productivity of labour in food production would decline, leading to widespread famine. Malthus's prediction failed to materialise as advances in technology greatly increased labour productivity in food production. Do such technological advances contradict the law of diminishing marginal returns?
Question 2 (200 words)
The advent of mobile shopping apps has led to an enormous growth in online shopping, particularly for electronic goods. Explain what effect is the introduction of shopping apps having on:
(a) Competition in the retail market for electronics. The consumer surplus of purchasers of electronics.
(b) The profitability of the traditional brick-and-mortar retailers of electronics.
Question 3 (200 words)
The wool industry in Hypothetica is highly competitive with the many woolgrowers seeing themselves as being price takers in an industry with no significant barriers to entry. In order to improve the incomes of woolgrowers, the government is considering providing funds for the wool industry to improve the marketing of its product and thus to increase the demand for wool.
(a) Using diagrams and assuming a constant cost industry, explain the impact of this policy on a typical farm (i.e. woolgrower) and on the wool market as a whole in the short run.
(b) Using diagrams, explain whether a typical woolgrower be better off in the long run if this policy is implemented?
Question 4 (200 words)
(a) Suppose the lawn-mowing industry approximates a perfectly competitive industry. Suppose also that a single firm buys all the assets of the lawn-mowing firms and establishes a monopoly. Contrast these two market structures with respect to price, output, and allocation of resources. Would you expect the monopoly to survive? Explain.
(b) The Best Computer Company just developed a new computer chip, on which it immediately acquires a patent, and becomes monopoly producer/seller.Show and explain what happens to consumer surplus, producer surplus and the deadweight loss (DWL) if the firm goes from a single price monopoly to perfect price discrimination.