Question 1
The rise of e-commerce means that in today's business environment, traditional businesses are faced with another level of competition that did not exist before the internet became part of our daily lives (Read page 180 of your text). Using the airline industry in Australia, list some of the factors that are driving an increase in competition between firms in this industry? Bearing in mind these factors, what sort of a market structure closely resembles the environment in which the firms in the airline industry in Australia operate in? Explain
Question 2
The following table shows the cost information for a local bakery:
Table 1
(a) Determine the fixed cost for the bakery.
(b) Complete the table above using EXCEL.
(c) In a graph, plot the marginal and average cost curves and describe the relationship between the curves.
Answers
A: $200 fixed cost for the bakery
B:
|
Quantity
|
TC
|
VC
|
FC
|
MTC
|
MVC
|
ATC
|
AVC
|
AFC
|
|
0
|
$200.00
|
$0.00
|
$200.00
|
|
|
-
|
-
|
-
|
|
1
|
$300.00
|
$100.00
|
$200.00
|
$100.00
|
#DIV/0!
|
$300.00
|
$100.00
|
$200.00
|
|
2
|
$380.00
|
$180.00
|
$200.00
|
$80.00
|
$40.00
|
$190.00
|
$90.00
|
$100.00
|
|
3
|
$470.00
|
$270.00
|
$200.00
|
$90.00
|
$60.00
|
$156.67
|
$90.00
|
$66.67
|
|
4
|
$580.00
|
$380.00
|
$200.00
|
$110.00
|
$82.50
|
$145.00
|
$95.00
|
$50.00
|
|
5
|
$700.00
|
$500.00
|
$200.00
|
$120.00
|
$96.00
|
$140.00
|
$100.00
|
$40.00
|
|
6
|
$830.00
|
$630.00
|
$200.00
|
$130.00
|
$108.33
|
$138.33
|
$105.00
|
$33.33
|
|
7
|
$970.00
|
$770.00
|
$200.00
|
$140.00
|
$120.00
|
$138.57
|
$110.00
|
$28.57
|
|
8
|
$1,120.00
|
$920.00
|
$200.00
|
$150.00
|
$131.25
|
$140.00
|
$115.00
|
$25.00
|
|
9
|
$1,285.00
|
$1,085.00
|
$200.00
|
$165.00
|
$146.67
|
$142.78
|
$120.56
|
$22.22
|
|
10
|
$1,460.00
|
$1,260.00
|
$200.00
|
$175.00
|
$157.50
|
$146.00
|
$126.00
|
$20.00
|
|
11
|
$1,647.00
|
$1,447.00
|
$200.00
|
$187.00
|
$170.00
|
$149.73
|
$131.55
|
$18.18
|
|
12
|
$1,842.00
|
$1,642.00
|
$200.00
|
$195.00
|
$178.75
|
$153.50
|
$136.83
|
$16.67
|
|
13
|
$2,062.00
|
$1,862.00
|
$200.00
|
$220.00
|
$203.08
|
$158.62
|
$143.23
|
$15.38
|
|
14
|
$2,302.00
|
$2,102.00
|
$200.00
|
$240.00
|
$222.86
|
$164.43
|
$150.14
|
$14.29
|
C: Potted chart included total cost, variable cost and fix cost
Question 3
Assume the bakery in Question 2 is one out of 100 identical firms working in a perfectly competitive industry. Hence each of the100 identical firms will have a cost schedule as calculated in Table 1 in Question1. 1. The market demand schedule for the bread product sold by this industry is given in Table 2.
Table 2
(a) Using the information provided, derive the supply schedule for an individual firm, and the industry supply schedule. (Note: You need to use a standard computer package to derive your answers). The relevant output(s) should form part of the main report and substantive evidence of how you obtained the answers should be included in the Appendix).
(b) Determine the equilibrium market price and the equilibrium market output level.
(c) Determine the individual's firm's level of profit.
(d) Discuss why the equilibrium point that you have determined in part (b) is deemed a short run equilibrium point. Is this point going to be the same in the long run? If not, discuss what the long run equilibrium would be?
