What is the difference between explicit costs and implicit costs? List three examples each of explicit costs and implicit costs that may be experienced by a small business. 2. In economics, what is the difference between the short run and the long run? Explain using a real world example why the length if the short run varies for different firms. 3. A firm has fixed costs of $60 and variable costs as indicated in the table below. For each level of output (total product), calculate total fixed cost, total cost, average fixed cost, average variable cost, average total cost and marginal cost . What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale? 5. Read the following excerpt and answer the following questions South Australia's nuclear royal commission has exposed the high cost of nuclear power for the state but has delivered fresh ammunition for those arguing it should be kept on the table as a valuable future option for low-emissions electricity supply. Numerous factors stack up against nuclear power in South Australia, including flat demand for gridbased power, rising use of solar and wind power, and its relatively limited ability to ship power to and from other states, the commission's interim report found. Combined with the high costs of nuclear reactors, that means nuclear is uneconomic for the state for "the foreseeable future", it said. …………. Mr Scarce (commission chairman) said the way the National Electricity Market works means renewable energy, with its much lower costs than other sources, is "the first energy that goes into the market" in SA, while a nuclear plant, with its significant financing costs, would be further up the cost curve. In such a small market as SA it was "difficult" to make nuclear effective, he said. Read more: http://www.smh.com.au/business/energy/nuclear-costs-too-much-for-sabut-held-open-as-option-20160214-gmu2lq.html#ixzz42SqcCeZ5 Author: Angela Macdonald-Smith; Sydney Morning Herald - February 15, 2016. 5a. What costs appear to be the problem with it comes to nuclear energy based on this article (fixed or variable)? Why does this make nuclear plants uneconomic? 5b. How does a flat demand for grid-based power (i.e. stable demand for electricity) affect the viability of new nuclear power plants? 5c. How does, rising use of solar and wind power affect the viability of new nuclear power plants? Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why. 1a. Restaurants 1b. Corn 1c. University education 1d. Local radio and television 2. What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency? What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency? 3. Draw a graph showing a firm in a perfectly competitive market that is operating at a loss. 4. Strong prices traditionally cause expansion in an industry, eventually bringing an end to high prices and manufacturers' prosperity. Explain, using appropriate diagrams. 5. Assume the gold-mining industry is competitive. 5a. Illustrate a long-run competitive equilibrium using diagrams for the gold market and for a representative gold mine. 5b. Suppose that an increase in jewellery demand induces a surge in the demand for gold. Using your diagrams, show what happens in the short run to the gold market and to each existing gold mine. 5c Over time what would the new long-run equilibrium price be above, below or equal to the short-run equilibrium price in part a) above (explain). Are there any changes in profits in the long run? Hint: over time fixed costs are likely to rise. How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain. 2. How might advertising reduce economic wellbeing? How might advertising increase economic wellbeing? 3. 'Being the only seller in the market, the monopolist can choose any price and quantity it desires.' Evaluate this statement: Is it true or false? Explain your answer. 4. A sceptic says, 'marketing research and brand management are redundant. If a company wants to find out what customers want, it should simply look at what they are already buying'. Do you agree with the comment? Explain. 5. Read the following excerpt and answer the following questions CSR and Boral have announced the intention to form a joint venture of Australian east coast brick operations, citing reduced brick usage as a major cause for consolidation. The companies have proposed to combine brick operations in New South Wales, Victoria, Queensland, South Australia, Tasmania and the ACT. The move is subject to clearance by the Australian Competition and Consumer Commission (ACCC). A joint statement from the companies explains brick demand in Australia has experienced a sustained structural decline, with bricks becoming an increasingly smaller component of the broader cladding market. Despite a general increase in construction activity over this period, total brick production in Australia has fallen by 46 per cent from its peak in 1981, according to Boral and CSR Using the concept of economies of scale to explain the two companies' argument that it is now necessary for CSR and Boral to merge (hint: what is happening to costs and to demand)? A graph is likely to be helpful in explaining this question. 5b. If the joint venture is allowed to proceed, how would you describe the new market? What would be the impact on price, quantity and profit? Explain. 5 5c. If the government allows the merger to go ahead two options are available for regulating the price. What are the two options and which would be the better option? Explain What is an oligopoly? Give two examples of oligopolistic industries in Australia. Why would you classify these examples as oligopolies? 2. Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide whether to increase its advertising spending to compete for customers. The following figure shows the payoff matrix for this advertising game 2a. Is there a dominant strategy for Godrickporter and, if so, what is it? Explain. 2b. Is there a dominant strategy for Star Connections and, if so, what is it? Explain. 2c. Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6000 and Star Connections earns a profit of $12 000. Is there an incentive for any one firm to increase its advertising budget? Explain 2d. What is (are) the Nash equilibrium(s) in this game? Explain 3. How does a public good differ from a quasi-public good? In your answer give an example of each type of good and why you believe it to be either a public or quasi-public good. 4. Using a supply-demand diagram, demonstrate how a positive consumption externality, vaccination, leads to market inefficiency. Using a supply-demand diagram, demonstrate how a negative supply consumption externality, pollution, leads to market inefficiency. Make sure you describe the diagram in words as well. Read the following excerpt from "Why Uber's surge pricing is naive economics" and answer the following questions Economists love Uber's surge pricing. But it is doomed, because customers hate it. Why? Surge pricing occurs when the supply and demand for Uber vehicles becomes unbalanced, for example, due to inclement weather, a public holiday such as New Years Eve or some other event (public transport failure, terrorist attack, …). Supply is low (who wants to drive in a snow storm?). However, demand is high (how do I get home when the rail network is down?). So, by raising the price (sometimes very substantially), Uber aims to encourage more drivers to pick up passengers and to ration the available supply to the customers who value the service the most. The result is a New Year filled with negative Uber articles, both in Australia and overseas. In the Harvard Business Review, Utpal Dholakia suggests that the near universal dislike of surge pricing is due to a lack of transparency and customers' lack of understanding about its benefits. He suggests education and transparency. But Uber is already embracing these strategies, trying to warn customers when surge pricing is likely and to make sure customers understand and agree to the surge price when requesting a car. So Dholakia misses the key point. It is not ignorance that leads to customer annoyance with surge pricing. Customers understand exactly what surge pricing does. And that is why they do not like it. From the customers' perspective, surge pricing does two things. First, it encourages more drivers and so makes it more likely that the customer can get home (or where ever else they are going) in less time (albeit at a higher - and possibly much higher - monetary price). …. Second, however, surge pricing creates a transfer. When I jump into the Uber car I don't know if my driver only decided to work because of the surge pricing. He or she might have been out there anyway. And in that case, I just pay more even though the driver would have been there anyway. Of course, the driver also gets more. The money doesn't disappear. It is a transfer. My loss through paying the higher surge price is the driver's gain. So from an economic perspective, this transfer is neutral. But that doesn't make the customer feel any happier. Author: Stephen King; Professor, Department of Economics, Monash University; The Conversation - January 11, 2016. 5a. Explain in detail using graphs how market forces will lead to conditions when surge prices can occur? Given these conditions in the market, why is the market inefficient in the absence of the surge price? (hint: talk about surplus and/or shortages as well as any deadweight loss that may exist in the absence of a price surge). 5b. How does surge pricing ensure that the market is allocative efficient? Explain how the consumer and producer surplus changes as a result of the price surge. Why would these changes upset customers? 5c. Provide one alternative to surge pricing.