Assignment on Cost of production

  1. The fee incurred in the purchase of the standard customer check-in tool is fixed since it will be the same for all the restaurants hence the total fee will be $1000 to set up. Therefore, it can only affect the fixed cost of each restaurant.
  2. Increasing the price of the Apple watches will impact Apple Company’s production since it interferes with the price used to manufacture each piece of apple watch. However, it is important to note that if the price of Apple watch increases then the production cost also increases.
  3. The graph below demonstrates what occurs when a Company in long run does not reach the minimum efficient scale. When the level of output is greater than the level of inputs, then it means that the company has increasing returns. On the other hand when the outputs are equal to the inputs then it means that the Company has a constant return to scale. It scenarios when the output is lower compared to inputs then it means the Company’s returns are decreasing. Nevertheless, on the graph, long – run average cost curve demonstrates that the average cost has reduced when more output is realized to in the market. The graphs also depicts that the minimum efficient scale (MES) is the lowest output level through which long run average cost is at its minimum. Apparently, those Companies that do not get to the level of MES will have to start losing money hence get out of the market.

Graph 3. Minimum efficient scale

  1. An explicit cost is defined as the cost comprises of monetary form of payment and this happens when a Company of business spends money hence affecting its cash flow. Some examples of explicit cost include: advert cost, utility bills, and employee salary.
    An implicit cost is defined as an opportunity cost that is obtained from allocation of resources for a specific purpose hence can be assigned to any monitory value. The following are some examples of implicit cost: loss occurred due to broken equipment, depreciation of a product, when a business owner owns the entire building then it means owners do not pay their on salaries.
    Task 4: Market power
  2. A monopoly firm is able to produce goods and services that are not readily available in the market and always it has high privileges to bar other firms to the market. It’s therefore important to note that this type firms are always the price makes since they are able to decide to sell the products at a higher price when they want. However, the difference comes in the demand curve since for monopoly firms the demand curve is the same as the demand curve for the goods and services which is not the same of firms that are not monopolistic. When the monopoly firm decides to sell their goods at a lower price the higher chances are they will lose some of their customers hence the demand curve decreases as well as the marginal revenue curve.

Graph 4. Monopoly

  1. Wilson research and development team is the only Company producing this type of Wilson racquets hence the demand curve will move downwards. When they set the price of the Wilson racquet too high, they will sell less racquets hence they won’t get much money. On the other hand if they sell the Wilson racquets at a low price then they will sell much of them hence creating more revenue. The biggest challenge is setting the combination of price and the quantity so as to maximize profits in the long run which can only be done through analysis if marginal cost and marginal revenue by producing more Wilson racquets.

Graph 5. Maximum possible profit
The moment when other companies will start producing similar products then the quantity demanded for Wilson racquets will reduce which means the demand curve will shift to the left and the marginal revenue curve will also shift to the left. The change in marginal revenue will be the same to the marginal cost when few Wilson racquets are produced. However, If Wilson racquet Company is making more progress in terms of profits, then the new Companies will continue to decrease the Wilson racquets marginal revenue and demand curves. All the Wilson racquet Company competitor firms can make profits in the short –run where they can also not make more profit in the long –run due to entry and exit costs.

Graph 6. Competitive firms enter the market
Task 5: Business strategy

  1. A negative externality factor that is clearly depicted from the article’s excerpt is congested traffic in Melbourne. Over congestion of roads around Melbourne has led to most of firms being affected due to misallocation of resources. Most of the Companies around Melbourne use of a lot of money on fuel bills making the variables core more higher. Therefore, this will impact the prices of goods and services from the manufacturing Companies. The price will increase when the price if the input increases, while supply will also decrease. The productivity of most of companies will also reduce since most workers will be late to work daily due to congestion which will lead to a decrease in supply and result to higher prices.
    Nevertheless, the transport sector will be affected due to extra time wasted on traffic. Hence, most of clients will be lost to other competitors in long –run they will lose the market.
    The aforementioned affects will impact the Melbourne market failure since they won’t be able to produce enough quantity and quality products. As demonstrated in the graph below, the social benefit in this case is lower compared to social cost. The only solution towards this problem is to void and change extra cost for the country’s economy and the government to improve on its infrastructure and transport sector. For instance, if the government implement a railway line then it will reduce congestion on roads.

Graph 7. Negative externality

  1. For the two companies to maximize on their profits then it means that to use a study strategy. The Nash equilibrium is a set of strategies for each player, and in case where each company has incentives so as to change the method which the other firm is using.
  2. From the example given: lower right case if Intel changes strategy to No R&D to R&D, they will make more profit and if AMD changes their strategy from No R&D to R&D they will also make more profit, hence No Nash equilibrium.
    Lower left case, Intel changes strategy from R&D to No R&D and losing profit, however if AMD changes from No R&D to R&D they will make more profit, also No Nash equilibrium.
    Upper left case, Intel changes from R&D to No R&D causes them to lose profit and if AMD changes from R&D to No R&D will also lose profit, this is a Nash equilibrium.
    Upper right case, Intel is better off by changing from No R&D to R&D but AMD is worse off by changing form R&D to No R&D, hence no Nash equilibrium.

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