ECONOMICS FOR BUSINESS - INDIVIDUAL PORTFOLIO

Economics for business - Individual portfolio



Economics for business - Individual portfolio

Answer 1:

a)

Output/Sales Volume

Total Costs

Total Revenue

Average Cost

Marginal Cost

Average Revenue

Marginal Revenue

0

1

0

1

0

0

0

1

13

27

13

12

27

27

2

24

53

12

11

26.5

26

3

33

78

11

9

26

25

4

40

102

10

7

25.5

24

5

50

125

10

10

25

23

6

66

147

11

16

24.5

22

7

84

168

12

18

24

21

8

104

188

13

20

23.5

20

9

126

207

14

22

23

19

10

150

225

15

24

22.5

18

b)

The profit maximizing level of output and price on the graph is the point where marginal cost and marginal revenue intersect.This point can be seen in the graph at around the output/sale volume of around nine.

Output/Sales Volume

Total Costs

Total Revenue

Average Cost

Marginal Cost

Average Revenue

Marginal Revenue

9

126

207

14

22

23

19

c)

The profit at this combination of price and output can be calculated by subtracting the cost from the revenue at this output/salevolume. The revenue is 207 and cost is 126, which makes the profit equals to 81.

d)

This company is operating in a market structure with diminishing returns.

Answer 2:

a)

The economic factors that have contributed significantly in the most recent recession of the UK economy are credit crunch, cost push inflation, falling house prices, and a loss in customer confidence in the financial markets and economy.

The credit crunch resulted in a shortage of finance, which has resulted in a huge build up of debts that need to be paid off. This massive debt has made it extremely difficult for UK to recover from the ongoing recession and is proving to be a major hurdle in their road to recovery.

The most concerning factor about this recession is that it is happening all around the world, which greatly exacerbates its overall effect.

The credit crunch is closely related to the falling house prices and shortage of mortgages. Furthermore, the cost push inflation squeezed incomes and reduced the disposable income that was available. Lastly, the consumer lost their confidence in the financial sector, which resulted in their confidence in the real economy to be shaken. All these factors together have resulted in the current recession that is proving to be one of the biggest challenge of the current century.

b)

The recession of 1979/1981was easily the worst in recent history. It lasted for a period of more than 1 year and resulted in the economic output to be contractedby around 5 percent. This was in sharp contrast from the expansion of 4 percent that it had earlier experienced. From the first 3 months of 1980, the GDP contracted consecutively for 5 quarters.

The recession of 1990/1991 was similar to the recession of 1979/1981 in the sense that output fell for a period of more than 1 year. However, the drop was not as sharp as was experienced in the earlier recessions. The economic output contracted by around 2.5 percent and in the 3rd quarter of 1990, the economy shrunk by 1.2 percent where as it 0.6 percent in the fourth quarter.

The biggest difference between the current recession and the aforementioned two recessions is unemployment. Around 2 million people lost their jobs in the recession of 1979/1981 whereas over 1 million people lost their jobs in the recession of 1990/1991. In this recession, the unemployment has surged because of the deep and prolonged recession. More than 2.5 million people have lost their jobs this time around particularly because that the liberalization ...