Economics

Impact of Increased Fixed Costs on Other Costs Name Institutional Affiliation 1. If a sudden increase in the fixed costs occurs, the impact on the following variables is as outlined below: a) The firm’s Average Fixed Cost (AFC) Response The AFC is computed from the total fixed Costs (TFC) and thus increase in the TFC will lead to a rise in the AFC (Hviid & Olczak, 2016). b) The firm’s Average Variable Cost (AVC) Response The fixed costs and the variable costs are distinct costs and independent of each other. Increase in the fixed expenses, therefore, does not affect the Average Variable Cost. c) The firm’s Average total cost (ATC) Response The ATC is computed from...

Week 8 Makeup Student`s Name Institution of Affiliation Adverse selection is a concept used in economics, insurance, and risk management to describe a situation where there is lack of symmetric information before a contract between a buyer and a seller. It occurs when buyers have more information than the seller, which distorts the market process. One party usually has more accurate and different information than the other party, which means that the party with less information is at a disadvantage than the other. Consequently, this entails a lack of efficiency in the market price and quantity since the most of the information in the market is transferred through prices (Keane and Stavrunova,...

Tailored Clothes Author’s Name Institutional Affiliation Tailored Clothes Consumer surplus is attained when the actual price paid by a consumer for a product is less than the one they are ready to pay. A demand curve can be used to demonstrate what the buyers are ready to pay for a particular product based on their private benefit expectations (Economics Online, 2018). In the case study, the consumer is willing to pay 200 USD for a tailored dress and the tailor finally offers the dress at 150 USD. The consumer surplus, in this case, is 50 USD, which is calculated by subtracting the actual price paid from the amount of money the consumer was ready to spend on the product. This surplus makes...

Discussion Name Institution Discussion Socialism vs. Capitalism Capitalism, according to Amadeo (2018), “is an economic system in which factors of production are owned and controlled by private entities.” Socialism, on the other hand, is an economy controlled by the state and organized by the central planning authority and all the factors of production are owned and controlled by the state. There is neither competition nor economic freedom for the households, and the central planning authority plans all the economic activities in socialism. However, in capitalism, there are customer sovereignty, freedom, commercial competition, and the social division of people. The people hold the...

Diminishing Marginal Utility Name Institutional Affiliation Case 1: Winning Lunch and Dinner Pizzas The concept of diminishing marginal utility means that the utility gotten from eating of the first unit will not be the same utility obtained from eating a second unit or a third one decreases as the consumed groups pile up (Elsner et al., 2015). The utility will decrease as one consumes more of the pizza. However, the consumer product should be a normal good. In the pizza case, the utility derived from eating the pizza on the first day will be very high. However, on the tenth day, the marginal utility will be lower compared to the first day. There would be diminishing marginal utility although...

Marijuana Discussion Name Institution The supply and demand for Marijuana are very high even though most of the states are yet to legalize marijuana trade. The current trade of marijuana occurs in the black market, which means that the states and the federal government are losing millions regarding revenues. Therefore, legalizing marijuana will open many avenues where the government will be able to maintain a high level of regulation on these concepts, which are essential in improving revenues. It is easier to regulate marijuana trade when the business is legal because traders will be issued with licenses to trade, which will help in generating revenues as well as limiting the trade (Maier et...

Title Name Institution Date Week 5 This type of price discrimination is called the third degree of price discrimination. In this aspect, the consumers are charged with different prices depending on their specific demographics and unique characteristics. This means that consumers with more financial power tend to be charged more. In essence, this strategy maximizes the profit obtained from each consumer. This ultimately drives profits upwards. This is done through the elimination of surplus of the products in the market (Liu & Serfes, 2013). The removal of the surplus in the market affects the price elasticity. Ultimately there will be a realization of greater profits due to the...

Discussions Name Institutional Affiliation Week 3 Makeup Perfect Competition A firm that functions in a perfect market is H&M which is popular in producing teens clothes. A substitute for this firm is Hollister which is a very good substitute. Monopolistic Competition An example of monopolistic is Apple which specializes in the production of computers and phones. A substitute for Apple is HP which is a strong substitute. Oligopoly an example of an oligopoly is British Telecom (BT) based in the United Kingdom. A substitute is Freeview hybrid DVB-T which is a very good substitute. Monopoly an example of a monopoly firm is Microsoft Window, and its main substitute is Linux which is a...

Name Tutor Course Date Incentive in the Firm CEO’s proposal Firm price: 100 – Q Firm output: Q Total revenue: 100Q – Q^2 Firm profit: 100Q – 1.5Q^2 CEO compensation: 20% Remaining profit for owners: 80Q – 1.2Q^2 Owners’ proposal Firm price: 100 – Q Firm output: Q Total revenue: 100Q – Q^2 Firm profit: 100Q – 1.5Q^2 CEO compensation: 10% Remaining profit for owners: 90Q – 1.35Q^2 2.My proposal The firm attains its maximum revenue by selling 50 units. Therefore, I propose that the company should approve the 20% that the CEO demands provided that the firm makes sales of at least 50 units. In other words, the firm should maximize revenue by ensuring that MR = 0....