ECONOMIC ANALYSIS

EC1022C/N - Economics for Business: Individual Portfolio

EC1022C/N - Economics for Business: Individual Portfolio

Question 1

a)

Price

Quantity

TC

AC

MC

TR

AR

MR

0

0

1

 

 

0

 

 

10

1

13

13.0

12.0

27

27.0

27.0

20

2

24

12.0

11.0

53

26.5

26.0

30

3

33

11.0

9.0

78

26.0

25.0

40

4

40

10.0

7.0

102

25.5

24.0

50

5

50

10.0

10.0

125

25.0

23.0

60

6

66

11.0

16.0

147

24.5

22.0

70

7

84

12.0

18.0

168

24.0

21.0

80

8

104

13.0

20.0

188

23.5

20.0

90

9

126

14.0

22.0

207

23.0

19.0

100

10

150

15.0

24.0

225

22.5

18.0

b)

c) How much profit is being made at this combination of price and output?

In order to find profit at this point, we will find the difference between the total cost and total revenue, i.e.:

TR-TC = Profit

Here, our total revenue is 188, while our total cost is 104, therefore,

188-104 = 84

Hence, at this point, the total profit would be 84.

d)

The large amount of profit earned by the company indicates that it is operating in an Oligopoly market structure. It is a form of imperfect competition. The most general definition of oligopoly is that it is a form of monopolistic competition, which is manifested in the occurrence of the market with a few to several manufacturers. The most important feature of oligopolistic firms is the mutual dependence of pricing decisions, i.e. a single company can significantly affect the sales of other companies. Since each of the oligopolists is an important factor in the market, oligopolists pricing decisions are mutually dependent. The price demanded by one manufacturer makes an important contribution to the size of the remaining sales. Hence, if one firm oligopoly reduces its price, it is expected that other companies also will lower the price to protect their market shares before the reduction.

Question 2

a) What economic factors appear to have contributed the most recent (2008/09) recession in the UK economy?

The economic factors appear to have contributed the most recent recession in the UK economy are just another series of factors that contributed to the previous recessions. Macroeconomic imbalances generated during the last decade due to the high price of oil and its derivatives created a huge foreign exchange market in oil-exporting countries. Thus, these assets reduce their profitability becoming less attractive; the market gets to work to create other more profitable and sophisticated assets. This crisis is marked by a sharp rise in oil prices and agricultural products. The exorbitant rise in prices of assets and the associated demand are seen as the consequence of a period of credit, of regulation and supervision inadequate or by growing inequality. With declining equity and housing prices, large UK banks have lost a lot of money. Despite massive aid granted by States to address threats of bankruptcy and systemic banking crisis, the result was a global recession that has led to a slowdown in international trade, higher unemployment and lower prices commodities. This picture is the breeding ground of the crisis (BBC, 2012).

A sharp increase in the volume of loans and bad credit habits is an important factor that appeared to have contributed the most recent (2008/09) recession in the UK economy. Between 2000 and 2007 loans grew rapidly, especially for the family market. It also granted loans to individuals and businesses that did not meet the standards existing credit before.

A boom in property prices is another economic factor of the recent recession. The ease in obtaining credit boosted the housing ...