ECONOMIC.docx

ECONOMIC.docx

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InternationalEducationCollegeofSUFE

Economic

Outcome1

Candidate:

TANYAO

IDnumber:

2011665098

Class:

GlobalTrade2

Date:

11/1/2013

1. AsSonybeginproductionoftheirnewproduct,PlaystationMove,definethefollowingcostsandexplaintheshortruninfluencesoneachone.Illustrateyourexplanationsofeachcostwithadiagram.

A. Totalcost

B. Averagecost

C. Marginalcost

Youexplanationofaverageandmarginalcostshouldincludereferencetotheinfluenceofdiminishingreturns.

Tobeginwith.TotalcostisFixedCostplusvariablecost[l].Duringtheshortterm,ifitisnotproducethenFixedCostsequaltototalcostFixedCostsisnotalterasoutputrisesandfalls.it'stosaythecostsremainthesamelevel,TotalCostischangefollowingVariableCosts.variablecostwillalterasoutputrisesandfalls.ThediagrambelowshowsTotalCost

Then,Averagecostisdividingtotalcostbynumberofunitsproduced[2].MarginalCostistotalcostresultingfromaddingtotaloutputbyonemoreuni[3]t.TheMarginalCostcurvealwayscutstheAverageCostcurveatlowestpoint,ifMarginalCostislowerthanAverageTotalCost,thenAverageTotalCostwillbedecreasing.IfMarginalCostisgreaterthanAverageTotalCost,AverageTotalCostwillbegrowing.

ThediagrambelowshowstheeffectofMarginalCostonAverageTotalCost.

Finally,theyhaveattheintersectionofrelationshipisduetotheLawofDiminishingReturns,followingmoreunitsofaproductionfactorareusedwhileotherproductionfactorsremainsfixedinsupply,additionalunitswillprovidelessadditionalproductsthanpreviousunits,thisistheLawofDiminishingReturns.Intheshortrun,maximumoutputcannotbeincreased,becauseisfixed,anotherfactorswillnotincreaseoutputbutwillreduceproductivity,becauseeffectivelymoreresourceswillbeusedtoproducethesamequantity.ThecurveofMarginalcostandAverageCostareU-shapebecauseofdiminishingreturns.Inthis"typical"case,becausetheproductionislowlevel,MarginalCostarebelowAverageCost,soAverageCostarefallingandquantityincreases,asincreasingMarginalCostcurvewillintersectaU-shapedaveragecostcurveatminimum,thepointtheAverageCostcurvebeginstoslopeupward.Forfurtherincreasesinproductionbeyondthisminimum,MarginalCostisaboveAverageCost,soAverageCostareincreasingandquantityincreases.

2. Thegameconsolemarketisanexampleofoligopoly.

A. Explainwhatismeantbytheterm''oligopoly''.

B. Describethemaincharacteristicsofthistypeofmarketstructure.

C. Withtheaidofakinkeddemandcurvediagram,andwithreferencetoprice/outputbehaviour,describehowfirmsarelikelytobehaveunderoligopolyconditions.

Oligopolyisonlyafewsellersofaparticularcommodity[4].Therearesomecharacteristics.Tobeginwith,highdegreeofindustrialconcentrationsanddominancebyafewlargefirms.Then,thenumbersofgoodsissimilar.Thirdly,enteringthemarketisbarriers.suchasithaslargescaleofproduction.Inaddition,inthelongrunitcanearnsupernormalprofits.Finally,oligopolyisnotoftenchangepricesanditdifficulttopredictbehaviour.

Accordingtodiagramone,thiscalledOligopoly.Ifthebusinessraisesprice,firmmakingdemandrelativelypriceelastic,thebusinesswilllosemarketshare,theconsumerwillgoanotherbusiness,ifthefirmreduceprice,demandingwouldbeinelastic.Totalrevenuewillfall.Theotherbusinesswillreducepricetoo.Oligopolydonotwanttopricecompetition,becausetheyfeartheywillreduceprices.Butmarketsharewillremain.Itrelyonothertypesofnon-pricecompetition.Suchas,freegifts,salesandspecialoffers.

3. Chooseanothermarketstructurefromeithermonopolyorperfectcompetition.

A. Defineyourchosenmarketstructure

B. Describethemaincharacteristicsofthistypeofmarketstructure.

C. Withtheaidofdiagram,describethepriceandoutputbehaviourofyouchosenmarketstructure.

Perfectcompetitionisatheoreticalmarketstructurethatfeaturesunlimitedcontestability（ornobarrierstoentry）,anunlimitednumberofproducersandconsumers.ForExample:

streetfoodindevelopingcountries,Freesoftware[5]therearesomecharacteristics.Firstly,buyersandsellersoffersthenumbersofgoods,butfirmsdonotaffectthepricethroughitsownaction.Allproductssoldareidentical,then,buyerandsellerscanfreedomentrytomarketandthisisprobablythemostimportantconditionforthetheoryofperfectcompetition.Inaddition,buyerandsellerscanunderstandmarketinformation,theinformationistransparentandtheydonotcontrolprice.Finally,itmustbepossibletobuyorsellanyamountofthecommodityatthemarketprice.

Accordingtodiagramtwo,thiscalledPerfectcompetition,priceisdecidedbythemarket,themarkethavetwopower,someisdemand,anotherissupply.Thenitleadtoequilibrium.Everyfirmdonotcontrolprice,everyfirmis"pricetaker9.Becauseofthecharacteristicsofthisformofmarketnoonecangainanadvantageandfirmscanselltheirgoodsuptothepointatwhichtheyhavemaximisedtheirprofits.Inthismarketfirmsare'priceTakers,becauseanychangeinoutputofonefirmistooinsignificanttoaffecttheprice.ThiscalledARequalMRequalPrice,marginalcostequalsmarginalrevenuewillProfitmaximization.Sincethepriceisnotaffectedbythefirmsoutput,marginalrevenuewillequalprice.ThusthefirmsMarginalRevenuecurveandAverageRevenuecurvearethesamehorizontalstraightline.Accordingtothediagramtwo,CisProfitmaximization.

4.Thedifferentmarketstructureassumethatfirmsaimtomaximiseprofits.Explaintheconceptofprofitmaximisationandtheproblemsofachievingthisobjective.

Intheperfectcompetition,marginalcostequalmarginalrevenuewillbeProfitmaximization.Inaddition,inmonopoly,inthelongrunwillresultProfitmaximization.Finally,inoligopoly,shortruncanreachProfitmaximization.Tobeginwith,Theprofitmaximizationignoreuncertaintyfactors.Microeconomicstheprojectofinvestmentandselectionisbasedontheprospectiveearningsorcomparisonofaveragerevenue,donotconsideringsomeprojectwhetherotherprojectrisk;Economistsalsotalkaboutrisk,butnottaketheriskstoputintothemaximumprofit.Butinreality,thecharacteristicsoftheriskindifferentprojectdifferenceisverybig,ifignorethesedifferencewillleadtowrongdecisionsThen,whenEnterprisesmakedecision,cashflowismorevaluethanprofit.Profitisjustaccordingtotheaccrualbasisofaccountingdata.Cashflowreflectstherealtimeofbalancepayments,itismorecanmeasurethevaluethanaccountingprofit.Finally,Theprofitmaximizationignoredthetimevalueofprojectrevenueandmoremanagersdonotknowmarginalcostequalmarginalcost.Ifweusetheaverageofthefutureprofitmaximizationasthestandard,thisisnotcorrect.Investmentdecisioncannotignoretimevalue.Forthesamecashinflows,theearlieroftimewillmorevalue.Therefore,duetotherealworldhaveuncertaintyofthetimevalue,theprofitmaximizationgoalasthemanufacturerisworthdiscussing.[6].

5. Identifyandexplainanalternativetheorytotheobjectiveofprofitmaximisation.

GrowthMaximisationTheorywaspropoundedbyRobinMarris.Tobeginwith,managerslookforstatus,perksandsalaries.Managerscanneverignoretheirshareholders,theymustkeepsameopinion.itisincreasingvaluefortheminthisgrowth.Then,marketorproductis'mature',ithaslittlegrowthpotentialfirmsmighthavetodiversifyintonewareas.Growthcanhappened,becauseofamalgamation,takeoverandmerger.finally,thefirmswanttosellmoreproduct,theymustenlargeproduce,productivecapacitymustalsogrow,growthismorebalance.suchas,plant,equipment.

AccordingtotheSony,Beijingtimeon27Octoberafternoonnews,SONYuse1.05billioneurostakeoverEricsson,owned50%equity,sothatthemobilephonemanufacturersbecomeSONY'Swhollyownedsubsidiary.itprovideachanceforSONY,rapidsmartphonewillbeintegratedintoitswidespreadInternetconsumerelectronicsproductline,thelatterincludingtabletPC,smartphonesandPC.Thisisnotonlygoodforconsumers,butalsowillpromotetheSONY'Sbusinessgrowth.ThedealwillalsoprovidecoverforSONYallofitsproductsandservices,awiderangeofintellectualpropertyrightscrosslicenseagreement,aswellasthefiveandmobilephonetechnologyrelatedimportantkinpatent.ThisacquisitionforSONYandEricssonhaveimportantmeaning,itwillinfluenceconsumers,thevigoroftheintelligentmobilephonebusinessandhaveanimportantstrategicvalueofintellectualpropertyrights,especiallywidelycrosslicenseagreement,*4screen*strategywillbeimplementation.Wecanbefasterandmorewidelyforconsumerstoprovideseamlessconnectioneachotherintelligentmobilephone,notebook,tabletPCandTV,andopenanewonlineentertainmentworld[7]

Reference

[l]ScottishQualificationsAuthority,August2012,Economic1;MicroandMacroTheoryandApplication,version2,ChinaModernEconomicPublishingHouse,Beijing.Page20（Accessedon7thJan,2013）

[2]ScottishQualificationsAuthority,August2012,Economic1;MicroandMacro

TheoryandApplication,version2,ChinaModern

Beijing.Page20（Accessedon7thJan,2013）

[3] ScottishQualificationsAuthority,August2012,

TheoryandApplication,version2,ChinaModern

Beijing.Page25（Accessedon8thJan,2013）

[4]ScottishQualificationsAuthority,August2012,

TheoryandApplication,version2,ChinaModern

EconomicPublishingHouse,

Economic1;MicroandMacro

EconomicPublishingHouse,

Economic1;MicroandMacro

Economi