Monopolistic and Oligopoly Firms | Sample Economics Assignment
Economics has major implications for decisions are made by producers and consumers for reaching the equilibrium positions. These applications are essential for integrating market conditions into human behaviours and ultimately leading to the equilibrium point indicating the equalizations of law and demands. This assignment as looked into some of these economic applications.
Question 1: Market structure of oligopoly and monopoly structures
i) Finding the outputs and the profits levels of the firms
Economic condition for the firm Lan T-shirt;
Profit level concerning the ATC1;
= 21-20 = 1
Output level= 30
Profit level concerning ATC2;
Quantity = 30
Profit level = 20 – 22.5 = -2.5
The firm will incur a loss if decides to increase the quantity level beyond 50 as both the ATC curve and MC curve exceeds beyond the demand curve. The point where the MC, ATC and the demand curve intersects, the firms starts to earn negative profits by moving always from the rounds of supernormal profits.
ii) Imperfect market barriers
- Higher costs
Firms which are operating on the monopolistic ground tend to operate with heterogeneous products which call for applications of sophisticated technologies and business models. This also calls for investments in huge amounts. These high costs deter the new entrants to see profit rounds thus acting as a barrier to entry (Rentschler, Bleischwitz & Flachenecker, 2018).
- Legal aspects
In some cases, the existing firms demand fees from the new entrants and compel them to fulfil complex legal works on intending to produce an existing line of products. These legal complexities make the operating grounds all the more complex as their actions are being monitored in every second by the existing firms allowing for obtaining patents and copyrights (Laroche et al. 2017).
Question 2: Size of the economy by GDP
The real GDP is measured by the valuation of the produced and the sold goods. However, it can be differentiated from nominal GDP since the valuation of the finished is done based on the current prices. For real GDP this valuation is based on the prices determined in the base year. Hence, the proper size of the economy is looked through the real GDP and less through nominal GDP (Dumitrescu, Quenez & Sulem, 2017).
Gdp Deflator measures the excluded portion of the nominal GDP in the real GDP. If the GDP deflator depicts a positive value then it means that the economy has experienced in the current year. Here, and the GDP deflator of the Goodlands Republic has been measured.
Table 1: Real GDP and Nominal GDP
(Source: Created by Researcher)
Measurement of the GDP deflator;
= Nominal GDP (2018) / Real GDP (2018) *100
It means that in the year 2018, the prices of the products increased by 107.816. This increase is captured by the nominal GDP but is excluded when measuring the real GDP. it is used in measuring the size of the economy.
Importance of real GDP;
Real GDP allows the economy to focus on the level of products produced and sold in the marketS. This is justifiable since the valuation of the products can be increased by increasing the price level. In this case, it would not be the exact measurements of the size of the economy as the higher prices lead to negative impacts on the affordability aspects of the economy (Barnett, Chauvet & Leiva-Leon, 2016). It leads to lowering the purchasing power although the economy continues to show that their products’ valuation has increased. These issues are ruled out with the help of real GDP.
Question 3: Business fluctuations
Business fluctuations are a major part of any economy since and are crucial for understanding the market factors affecting the company’s activities.
Causes leading to changes in the business fluctuations cycles are as follows;
Monetary policies: These policies controlled by financial institutions play a crucial role in deciding the extent of liquidity in the market. If the flow of money within the economy is increased then the economy enters the economic boom and the economic growth phase. The presence of liquidity ensures that the organisation lay hands on the affordable resources triggering an expansion of the economy.
Fiscalpolicies: These policies come into play on the initiatives of the government for controlling the uncontrolled inflation witnessed as soon as the economy enters the growth and the boom phase. On implementing tightened economic policies, the government implements higher interest rates and lowers spending (Grilli, Tedeschi & Gallegati, 2020). This indicates the recession phase of the economy.
These two policies can cause fluctuations in the business cycle fluctuations thus reflecting the various stages of the economy.
- Lowering of the aggerate demand level: The economy can also enter the recession phase on witnessing a lowering of the aggregate demand levels. The lowering of demand level is triggered by the inflation levels due to the uncontrolled growth of the economy.
- Other factors speak for public investments, higher development rate (positive or negative) of the housing sector and financial sector and other parameters measuring the rate of growth (Chahrour & Gaballo, 2017).
Relationship between government spending and consumer spending;
Government spending plays a key role in increasing consumer demand since the business organisations are given more opportunities in terms of resources available and lower interest rates. Here, the companies invest more in upgrading their operating and the service grounds thus giving the consumers more choices to buy from.
Question 4: Unemployment and inflation
Inflations rate aims to measure the rate of changes in the price level in each year faced by an economy. Here, the deposit amount has been given along with the actual inflation rate and anticipated inflation rate.
Calculation of the rate of interest:
Nominal interest rate – Actual rate of interest
= 5% – 6%
Impact of the inflation on the deposited amount;
= $ 200000*-1% = $ 2000
In this case the, prices lowered by 1% instead of increasing by 4%. Hence return earnings on the deposited amount will be decreasing by $ 2000.
Impact of inflation in the city of residence;
Under the impacts of inflation, the affordability measured by the prices of food and other commodities is expected to come down. This indicates a negative influence on the purchasing power. The accommodation expenses are also expected to go up with every unit rise in the prices captured by inflation.
- ii) Unemployment
Unemployment is inevitable for each economy however its impact on the overall economy is seen frpm its rate, The types of unemployment are structural, cyclical and frictional. This section has looked into the structyural side of unemployment.
- Force of the workers of a country like Australia can be projected in a well manner by seeing the degree of the population of the country along with the unemployment rate of the country.
Population of a country like Australia is around 20.8 million
Number of unemployment individual is around 0.7 million
It has been found that total number of people who are employed is 13.5 million
Therefore, force of country’s labour within the economy is around;
13.5 million + 0.7 million = 14.2 million
There are certain number of people who are not considered within the force of workers of the country
= 20.8 million – 14.2 million
= 6.6 million
The causes of the structured employment of Australia are stated in an effectual approach below:
- Absurdity between the demands as well as requirements of the workers along with the companies in the market
- Absence of proper skills of job
- Insufficient working abilities
- Instability of the company’s operation in the market
- Inability to adapt new technology of the workers
In case of any expenditure the government has a great influence on the organisational investment. The subjected firm that is Jot Inc.Ltd has to be focussed effectively on the market demands of the company. The influences that ply on the amount of government expenditures are as follows;
• A minimum interest has to be paid for the funds that have been borrowed
• In case of aggregate calculation higher demands have be shown
From the above discussion it can be said that the decisions and involvement of government in financial decisions of a company triggers to think them differently. All the investments of the companies like Jot Inc have to be done based on the government regulations. Certain factors can be responsible for the changes observed in the curve of the aggregates. As soon as the rate of inflation gets lowered the curve changes. Additionally, with the increase of the interest rates the
curve can be changed as well. Based on the changes of the aggregate curve the estimation of the investments by the company can be efficiently done. Based on the government regulations all the company investments have to be done. The change in the aggregate curve marks fluctuation of trend.
It can be concluded that the monopoly of the market ought to be evaluated in a detailed manner by considering several aspects of the management of finance. Moreover, it has been found that economic aspects of the country are essentially elaborated in this study for managing the consistency of the company in the market. However, it can be feasible to explicate that the oligopoly as well as monopoly of the market need to be described with the help of business performance.
Barnett, W. A., Chauvet, M., & Leiva-Leon, D. (2016). Real-time nowcasting of nominal GDP with structural breaks. Journal of Econometrics, 191(2), 312-324. Retrieved on 19th June 2020 from: https://www.econstor.eu/bitstream/10419/103043/1/796425094.pdf
Chahrour, R., & Gaballo, G. (2017). Learning from prices: amplification and business fluctuations. Retrieved on 19th June 2020 from: https://www.econstor.eu/bitstream/10419/175677/1/ecb-wp2053.en.pdf
Dumitrescu, R., Quenez, M. C., & Sulem, A. (2017). Game options in an imperfect market with default. SIAM Journal on Financial Mathematics, 8(1), 532-559. https://arxiv.org/pdf/1511.09041
Grilli, R., Tedeschi, G., & Gallegati, M. (2020). Business fluctuations in a behavioural switching model: Gridlock effects and credit crunch phenomena in financial networks. Journal of Economic Dynamics and Control, 103863. Retrieved on 19th June 2020 from: http://repositori.uji.es/xmlui/bitstream/handle/10234/187975/69687.pdf?sequence=1
Laroche, F., Sys, C., Vanelslander, T., & Van de Voorde, E. (2017). Imperfect competition in a network industry: The case of the European rail freight market. Transport Policy, 58, 53-61. Retrieved on 19th June 2020 from: https://halshs.archives-ouvertes.fr/halshs-01655013/file/Transport%20policy_Dynamic%20approach_Revised_V9.pdf
Rentschler, J., Bleischwitz, R., & Flachenecker, F. (2018). On imperfect competition and market distortions: the causes of corporate under-investment in energy and material efficiency. International Economics and Economic Policy, 15(1), 159-183.Retrieved on 19th June 2020 from: https://discovery.ucl.ac.uk/id/eprint/1531939/3/Bleischwitz_Efficiency%20paper%20Final%20post-review%20pre-copy-edit.pdf