Market Analysis of Pandemic Masks: Shifting Demand and Profit Maximization, Exams of Market economy

Download Market Analysis of Pandemic Masks: Shifting Demand and Profit Maximization and more Exams Market economy in PDF only on Docsity!

Part A

1. I choose the pandemic mask as a good market. As corona virüs is spreading through

the World, the mask sales and usage increased significantly. Everyone who goes

outside needs to put on a mask over their faces, and it almost becomes like our Daily

uniforms, dresses. So why humans buy different dresses with various colors and

patterns? The answer is to see themselves as pretty and cool. My company will aim to

create various masks with different colors and patterns, such as pictures and symbols

from popular TV dramas or celebrities' pictures, besides, by giving a chance to our

customers to create their own design on the internet and send their desired design to

our company to be created. By creating this kind of unique mask, people will prefer to

buy our companies' mask rather than a basic, regular mask. So if we look at this

according to the demand and supply model, the taste shift to the greater popularity will

make our demand curve shift towards the right, and demand will increase. So when

the demand curve shifts to the right, equilibrium price and quantity increase.

2. I choose the pandemic mask as a good market. As you know, each passing day, corona

virüs is mutating and becomes more infectious. To prevent this, everybody needs to

put on a mask whenever going out or meeting other people, and they need to change

their masks each time they are used to prevent possible infection. This significant

usage of the mask will affect people will low income negatively. Some greedy sellers

are increasing the price of mask meaninglessly. Thus, people with low income are

forced to use the same mask for a couple of days to save some money because they

can not afford to buy new masks because of the high price, which will lead to an

increase in the rate of spreading of corona virüs. So putting a price ceiling is a must

for his situation. By putting a price ceiling, everybody can afford to buy masks with

their income, and greedy sellers forced to take a step back. Furthermore, in this way,

the rate of spreading of virüs can be taken under control.

3. As you can see the graph below, when demand curve shift towards right and increases,

deathweight loss also increases.

4. I choose air. I think air is non-rival. As we know from lecture notes non-rival means when

someone is using that service, it does not prevent someone else from using that service. In

other words, non-rival goods can be used by multiple persons and that good/service is not

just for one person. As you know anybody can use air for breathing. Air belongs to every

living creature. Also, the supply will not decrease as some creatures inhale oxygen and others

8. In this graph first of all fixed cost 18TL selected than new graph created by selecting fixed

cost as 8TL, according to graph below MC and AVC are still same, AFC and SRATC decreases.

So it can be said that decrease at fixed cost decreases AFC and SRATC as well but do not

affect MC and AVC.

.

9. The two inputs are boks for school library and electricity for school. The necessary book are

bought at the beginning of the school as a fixed cost and as the usage of electricity will

change Daily so it will be variable cost. For example ın winter the day light will decrease so

we will forced to use lambs more compared to spring time.

10. When price smaller than AVC, the meaning behind is that our TR(total revenue) is not

enough to cover the expense which is variable cost. This situation will force firm to shut

down and make them pay the price of their losses which is basicaly FC(fixed costs). So we can

say that the interception point of MC and AVC is shut-down point.

11. Free entry and exit condition is basicaly under the perfect competition characteristics so, ı

slect my good as a cucumber. First of all perfect competition is like if everybody who Works

in this market gains high profits, others see this oportunity and join this market too so profits

will begin to decrease. When they starting to realize that they have losses, many producer

will exit from this market so losses will start to decrease. As a result we can say that, it is easy

to join or exit fort his company and consumer have all the şnformation about market and it

is perfectly elastic so if you change the price you will shut-down so producers are basically

price takers and the reason behind this because all of the producer sell almost same thing so

they are perfect substitutes. To conclude you can koin or exit from this market easily.

Because cucumber is very basic thing.

12. HHI is “The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market

concentration.” According to web site. It is calculatin by summing the square of each firm’s

market share. Increase ın HHI means that this market shared between low quantity of firms

or one the firms has very high share for example %90. I choose my good as a texting

aplication which is whatsapp. As a market which is texting aplications, whatsapp widely used

over the World, it surpassed the Bip, WeChat, Mesanger etc.. And it is continues to increase

it’s total share and as ı mentioned very different aplications as well. As ı said to make HHI

increase yo either need very high share of that market. I am assumin but ı believe that it is

true, whatsapp almost have %65 of texting aplication market’s share and it’s still increases.

13. In long run outcome of perfect competition market producers are price takers. In this

market, as it is easy to enter or exit when somebody start to get profit, others also will join

this market and they will decrease the profit towards 0. When they start to make losses,

some producers will exit from this market and other producers will start to make profit and

general market will start to decrease it’s losses towards 0. As a result we can say that in long

run they will not be able to make economic profit, it will be 0. In the case of monopolistic

competition the firms are price makers this time and they are going to maximize their profits

until MR=MC and this will make that damand curve to shift and this shift make demand curve

to become tangent to the ATC and this will result in break-even and they will not make any

economic profit in long run.

14. According to lecture botes of monopoly, when demand p=min. LRAC is around or smaller

than output level there will be natural barier. And if Qd is smaller than Q which is minimizes

LRAC, single company can deal with the demand by himself by producing at level below LRAC

minimzing level. For example, Phone market is very important and big market. As everone in

World know that there is two big firms in this market which is Samsung and IPhone. In

adition to these two hegemons, there is also powerfull HuaWei and Xiaomi. If somebody else

want to enter this phone market and sell its goods near this powerfull companies, it needs a

lot of capital. Also it needs to create more technological and good quality phone. Because

everyone trust the quality of these companies’ products. So this is a natural barier, if you

dont spend tons of Money you cant enter this market.

Part B

Question

a)Original Qd table and graph

• ECO
  • MT-
• Choose Qd+

b)

CS =

PS =( 500 ∗ 200 )+

CS =(

PS =( 750 ∗ 200 )+

C)

For price ceiling at price=

CS =(

PS =( 250 ∗ 200 )+

DW =

For price ceiling at price=

CS =

PS =( 500 ∗ 200 )+

DW =

Question

For 360 units of utility

3 orange and 4 olives for first bundle as (100+70+30)+(70+40+30+20) = 200+160 = 360 units

So consumer will pay (315)+(420) = 125 $

4 orange and 3 olives for second bundle as (100+70+30+20)+(70+40+30) = 220+140 = 360 units

So consumer will pay (415)+(320) = 120 $

For 330 units of utility

2 orange and 4 olives for first bundle as (100+70)+(70+40+30+20) = 170+160 = 330 units

So consumer will pay (215)+(420) = 110 $

4 orange and 2 olives for second bundle as (100+70+30+20)+(70+40) = 220+110 = 330 units

So consumer will pay (415)+(220) = 100 $

Total cost= 125+120+110+100 = 455 $

Question

I choose to open seven companies by breaking down KIBHAS, the corresponding share for each

company as below

Company-1 Company-2 Company-3 Company-4 Company-5 Company-6 Company-

HHI

15 15 10 10 10 20 20 1550

HHI = 15

2

2

2

2

2

2

2

Select Price = 12 TL

Profit maximazing point isinterseption point of price ∧ MC ∧ it is q = 6

ATC > Price so it is Loss , Loss = 6 ∗( 13 − 12 )= 6

Select Price = 20 TL

Profit maximazing point isinterseption point of price ∧ MC ∧ it is q = 8

ATC < Price so it is Profit , Profit = 8 ∗( 20 −14.25 )= 46

c)

shut down is whev the AVC is at it’s lowest. According to table ı created at fixed cost 18, lowest AVC

is 9.6 at production level Q=5, MC=

Break even point is when price equals to min. SRATC value, so in this case min SRATC=13 and the

q=6, Mc=12.

These are not absolute values but closest values.

All in all break even price is where MC and SRATC intercept and shut down price is where MC and

AVC intercept.