A) Marginal Analysis refers to an examination of the effects of additions to or subtraction’s from a current situation. (Layton, Robinson ; Tucker, 2016, p. 35) The term marginal is classified as extra. It therefore helps in deciding between options. In this situation the value of the crops is $80 without the addition of 1 kilogram of fertiliser and value rises to $100 if the farmer decides to add 1 kilogram of fertiliser per hectare. For example if the cost of fertiliser is less than $20, let’s say its $15 per hectare the farmer should add fertiliser as per the marginal analysis because the profit will increase by $5 with the addition of the fertilisers and therefore the marginal cost will increase every $20 if the fertiliser cost is set up at $15. Therefore according to marginal analysis the farmer should add fertiliser as long as the cost is less than $20 per kilogram. (Layton, Robinson & Tucker, 2016, p. 35).
B) Opportunity cost is the best alternative that is sacrificed for a chosen alternative. (Layton, Robinson & Tucker, 2016, p. 33) The opportunity cost is classified as an option that is given up as best alternative and is therefore not where Bill spends $10 to buy the action figure. As opportunity cost is the best alternative sacrificed for a chosen alternative. So therefore, in this case the opportunity cost of buying the action figure is the Batman Graphic Novel because the graphic novel is the best alternative which has been sacrificed and the action figure is a chosen alternative by Bill. It cannot be an X Men T-Shirt because the graphic novel was Bill’s close second choice. (next best alternative)
Quantity of wheat
It can be said that the demand curve is perfectly elastic which means that the individual farmer’s quantity of cheese sold is limitless in relation to the price which does not vary.
A) In a perfectly competitive market a firm would not innovate because they will not get a higher price for their products from the buyers because there exists to be lot of firms but they can innovate by reducing their cost and expenses in order to increase their profit.
The market structure is represented by only a single seller which means there are high barriers as which makes it even difficult for new firms to enter the market (Layton, Robinson & Tucker, 2016, p. 188) The market structure is represented by a lot of firms which means there are no barriers for a firm to enter the market (Layton, Robinson & Tucker, 2016, p. 160)
The type of product is unique which means that close substitutes don’t exist. (Layton, Robinson ; Tucker, 2016. p. 189) All the firms are seen as producing a homogenous (similar) product. The products and services produced by the firms are identical. (Layton, Robinson ; Tucker, 2016, p. 159)
C) Revenue in basic terminology is defined as the sum of money a firm receives. Total Revenue is calculated as price x quantity. If a firm in a competitive market doubles the amount of output it sells or in other words it can be said if the firm doubles the quantity then the revenue will then be calculated as price x quantity*2. Therefore, this is only going to double the total revenue if the firm doubles the amount of output/ quantity and the price therefore doesn’t change it remains constant.
A) The proportionate change in quantity demanded when the price falls from $16 to $14 is:
%change in quantity demanded = New-Old = 35-25 = 10/25 = 0.4
B) The proportionate change in price when the price falls from $16 to $14 is:
%change in price = New-Old = 14-16 = 2/16 = 0.125
C) The price elasticity of demand between $16 and $14 = %change in quantity demanded
%change in price
Therefore Ped = 0.4 = 3.2
In other words it can be said that it is price elastic because the price elasticity of demand is greater than 1 which is 3.2, therefore demand changes by a greater% than the price% change.
D) Mid-Point Formula = New – Old
Price elasticity of demand = %change in quantity demanded/%change in price
%change in quantity demanded = New-Old
35-25 = 10 = 10 = 0.33
(35+25)/2 60/2 30
%change in price= New-Old
14-16 = 2 = 2 = 0.13
(14+16)/2 30/2 15
Price Elasticity of Demand = 0.33 = 2.53 (Price Elastic), therefore demand changes by a greater% than the price% change. 0.13
i) Point H
ii) Point F
iii) Point E
iv) Point A
S of cheese
Minimum Price of cheese surplus
D of cheese
Figure A Quantity of cheese
The term price floor is defined as a legally established minimum price a seller can be paid. (Layton, Robinson & Tucker, 2016, p. 89) Price floors are most commonly used in agriculture industry in order to protect the farmers. Therefore in order to be effective the binding price floor which has been set by the government should be on top of the price of equilibrium not below the equilibrium price because the producers will not sell the cheese below the equilibrium price.
ii) Therefore in this situation there is a surplus because the quantity demanded of cheese is less as compared to the quantity supplied of cheese. (QD