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JAMAICA
INTRODUCTION TO MICRO-ECONOMICS
GROUP PRESENTATION K
A project submitted in partial fulfilment of the requirements for the Bachelor of Science degree
in Business Administration.
GROUP MEMBERS:
Author Note
Orville Brown
Summary and Introduction
Solid Baking Company is a producer of rock cake in the small community of Mocho, Clarendon.
Rock cake has become an irreplaceable staple for the many residents in this community and the
firm is considering expanding to other sections of Jamaica. The cost and revenue information for
Solid Baking Company are shown in Table 1.
(i). Table one show’s Marginal Cost (MC), Average Total Cost(ATC), Total Revenue(TR)
and Marginal Revenue(MR) with relation to price and output.
Question 1
A. Complete the marginal cost, average total cost, total revenue and marginal revenue
columns in Table 1.
Cost Revenues
Quantity
Quantity Marginal Average Demand Total Marginal
Produced Total cost ($) Cost($) Total Cost ed Price Revenue Revenue
- $ 100 - - - $ 170 - -
1 $ 140 $ 40 $ 140 1 $ 160 160 160
2 $ 184 $ 44 $ 92 2 $ 150 300 140
3 $ 230 $ 46 $ 77 3 $ 140 420 120
4 $ 280 $ 50 $ 70 4 $ 130 520 100
5 $ 335 $ 55 $ 67 5 $ 120 600 80
6 $ 395 $ 60 $ 66 6 $ 110 660 60
7 $ 475 $ 80 $ 68 7 $ 100 700 40
8 $ 575 $ 100 $ 72 8 $ 90 720 20
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B. Use the completed in part A to construct the Demand Curve, Marginal Revenue Curve,
Average Cost Curve and Marginal Cost Curve for this company. Label your graph
carefully and completely.
C. Based on your response from parts (A) and (B) answer the following
To determine the firm’s profit first we have to identify the firms profit maximization output level
quantity which is (MR=MC) or where (MR>MC). Once that is accomplished we deduct Total Revenue
from Total Cost (TR-TC).
So, Profit=TR-TC,
$660-$395=$265
2
II. How do you compare the profit maximizing price and output of this firm with that of a
perfectly competitive firm?
In a Perfectly Competitive Firm, Price and Output have an inverse relationship, i.e., Price will be low
while output is greater (increase). This happens in a PC market, as the numbers of firms are many, so a lot
of output will be available thus having no control over the price (price takers). Perfectly Competitive
firms are said to be elastic as Demand curve = Marginal Cost
Solid Baking Company is a monopolistic firm. In figure 1, and profit is maximised where MR=MC. If
cost curves are the same in monopoly and perfectly competitive industry, the monopoly with produce a
lower output and a higher price than the perfectly competitive.
Question 2
A. Use the cost schedule in Table 1 to calculate the average variable cost of the 4th unit
produced.
A. Calculate the price elasticity of demand when the price of bread increase from $150 to
$160 and interpret your result. (Use the midpoint formula)
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The answer is -10.33 therefore we use the universal value which is 10.33 and the PED is elastic as the
demand reacts strongly to the change is price of bread.
B. Determine the value of the consumer surplus if the maximum price a consumer is
willing to pay is $170 and the amount they actually pay is $130
PRICE
$170
Consumer surplus
$130
D
Quantity demanded
1 2 3 4
A consumer surplus occurs when the consumer is willing to pay more for a given product than the current
market price.
Formula ½ bh
=1/2 (4) (170 – 130)
= (2) (40)
= $80
4
C. Given that Solid Baking Company operates in a monopolistic competitive market
structure, compare the characteristics of this market structure with that of a perfectly
Market Type Perfect Competition Monopolistic competition
Number Of Firms Numerous Many
Freedom of entry No barriers to enter or exit market Few Barriers to enter the market
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D. Suppose Ben has a monthly income of $8,000 which he allocates between two goods
rock cake and sodas. The price of a soda is $100 and the price of a rock cake is $150.
I/Py
80 Soda
III. If the marginal utility for the last unit of soda is 500 utils and that of rock cake is 400
utils. What should Ben do to maximize his utility?
MUs = MU r
Ps Pr
The Law of Diminishing Marginal Utility states that as a person increase consumption of a
product, while keeping consumption of the other good constant, there is a decline in marginal
utility for each additional unit of that product.
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Ben’s Utility is;
MUs ≠ MUr
Ps Pr
500 = 400
100 150
= 5 2.67
Increase 5 units and decrease by 2.67 units according to the law of diminishing MU.
E. Describe the integration strategy Solid Baking Company would employ to grow the
business if should expand its operation to produce hard-dough bread, buns, biscuits,
and snacks.
If Solid Baking Company decides to add other products to its firm, it will be following a Horizontal
Integration Strategy. This strategy focuses on one firm producing multiple outputs of common qualities or
same field. This acquisition will flow along the secondary (output) level.
It is not a Vertical Strategy as this will involve Solid Baking Company acquiring /merging with another
company that aids in the production of the good it already have. The movement will be from primary –
secondary – tertiary, i.e. they will acquire/merge with a primary firm (the producers)