Part A
Imagine that it is the year 2199. Technology has progressed at an incredible pace. The latest discovery is the plutonium engine, which is capable of converting plutonium, a by-product of nuclear fission, into fuel to power the nuclear reactors in our new form of transportation, the rocket-car. However, because the firm that invented the engine, the Futures Unlimited Corporation, already has a government license to control and distribute the quantity of this certain isotope of plutonium on the market, it is now conceivably in charge of a monopoly on plutonium-fueled transportation.
1. Describe the economic outcome of this single-price monopoly in terms of profit. Provide one (1) supporting fact to support your response.
2. Describe one (1) way that the Futures Unlimited Corporation makes output and price decisions
Part B
1. Would consumers benefit more from a tariff or a quota on imports? Provide one (1) supporting fact to support your response.
2. Consider the following weekly production possibilities of gloves and hats in Panama and Russia:
1.What is each country's opportunity cost of producing gloves and hats?
2. If the countries could, should they trade? Provide one (1) supporting fact to support your position.
C13.V.4.1 Microeconomics
Assignment 08,
Monopoly, Tariff or Quota and International Trade in Microeconomics
Part A
A single-price monopoly is a company which sells each unit of its output at the same price to all its clients. Normally, in a monopoly a firm selects a higher price and lesser in quantity of output. There are no close substitutes and barriers to entry. If a product of a company has no close or similar substitute in a market than the firm do not faces competition. If there is no competition in a market, it leads a huge profit to the company. There are barriers to entry to protect a company from the arrival of new competitors in a market. A firm Futures Unlimited Corporation, from the question which has invented rocket-car, a new form of transportation earns a lot of profit from a business point of view. Because it has a government license to control and distribute the product and it has not any competitors. There is a majority of using the new form of technology in a market. There are not any other companies to produce similar rocket-car. This company has not any competition with anyone. That’s why this firm can raise its price how much they want. This firm can maximize its profit by selecting a higher price and lesser quantity of its rocket-car or by manufacturing similar other new technologies. The Futures Unlimited Corporation goes on profit anyway.
1. Describe the economic outcome of this single-price monopoly in terms of profit. Provide one (1) supporting fact to support your response.
2. Describe one (1) way that the Futures Unlimited Corporation makes output and price decisions
Part B
1. Would consumers benefit more from a tariff or a quota on imports? Provide one (1) supporting fact to support your response.
2. Consider the following weekly production possibilities of gloves and hats in Panama and Russia:
1.What is each country's opportunity cost of producing gloves and hats?
2. If the countries could, should they trade? Provide one (1) supporting fact to support your position.
C13.V.4.1 Microeconomics
Assignment 08,
Monopoly, Tariff or Quota and International Trade in Microeconomics
Part A
A single-price monopoly is a company which sells each unit of its output at the same price to all its clients. Normally, in a monopoly a firm selects a higher price and lesser in quantity of output. There are no close substitutes and barriers to entry. If a product of a company has no close or similar substitute in a market than the firm do not faces competition. If there is no competition in a market, it leads a huge profit to the company. There are barriers to entry to protect a company from the arrival of new competitors in a market. A firm Futures Unlimited Corporation, from the question which has invented rocket-car, a new form of transportation earns a lot of profit from a business point of view. Because it has a government license to control and distribute the product and it has not any competitors. There is a majority of using the new form of technology in a market. There are not any other companies to produce similar rocket-car. This company has not any competition with anyone. That’s why this firm can raise its price how much they want. This firm can maximize its profit by selecting a higher price and lesser quantity of its rocket-car or by manufacturing similar other new technologies. The Futures Unlimited Corporation goes on profit anyway.
In an economics, monopoly is a sole seller of its goods. The Futures Unlimited Corporation is a "price maker ," not a "price taker." This company can make a change in price whenever it wants. But normally, in monopoly a firm sells its product in going price, take it or leave it. There is a chance of sell more number of product at that price. This company receives larger profits and has power to influence the price of a product in a market. It aims to maximize profits. The firm do not charge a price that customers cannot bear. Higher price decrease the number of consumers. The price of a rocket-car and other new technologies should be suitable to attract more customers in a market. In a monopoly, the demand of a quantity does not go down to 0, if the firm raises its price. But the demand of a quantity increases if the firm lowers its price. There is no chance of losses for a company in a monopoly. The Futures Unlimited Corporation has a full right to select a price of its new inventions. It can also raise the price of its product if the demand of the product is high in a market. The Futures Unlimited Corporation is a only one company to produce these types of new technologies in a market, so this company is the market.
Part B
A tariff is tax charged on import goods by government and a quota is a number or quantity of goods imposed by a government which are imported in a country. In a tariff the tax may range from 1% to 100% of the cost of the product. A quota helps to secure from a competitive market and run out of business to the manufacturers of the company of the domestic product. It benefit the manufacturers in the domestic economy in a market. This results a higher price on the product when it goes in the hand of the consumers. A tariff and a quota have the same effect on the product but tariff benefit more to the customer than quota. In a quota, importers buy a product from other country at lower price and sell them in a higher price. Importer can benefit from quota than tariffs. In a tariff, government increase its revenue from the tax of the imported goods which is beneficial to the consumer when it reach in market. In U.S.A. the local citizens like the tariff policy than the quota policy because the government can increase its income from the tax of the tariff and can cut other taxes which are imposed to the public. It can help consumers because some of the taxes are removed of the product when it arrives in a market. Another way that can benefit consumers is by expanding public programs because these programs are paid by the government through money gained from tariffs.
a. Russia: The opportunity cost of 20 gloves = 80 hats
The opportunity cost of 1 glove = 80/20 = 4 hats.
The opportunity cost of 80 hats = 20 gloves
The opportunity cost of 1 hat = 20/80 = ¼ glove.
Panama: The opportunity cost of 180 gloves = 90 hats
The opportunity cost of 1 glove = 90/180 = ½ hat.
The opportunity cost of 90 hats = 180 gloves
The opportunity cost of 1 hat = 180/90 = 2 gloves.
b. International trade is a way to exchange or buy goods between nations to increase the productivity of their resources. It benefit the country which has a high number of production of goods. According to the question, it would be profitable to both countries if they start trading by exporting and importing hats and gloves. The opportunity cost of 1 glove is equal to 4 hats in Russia and the opportunity cost of 1 glove is equal to ½ hat in Panama. It would be better if Russia export its gloves to Panama and import hat from Panama instead of producing itself. Similarly, the opportunity cost of 1 hat is equal to ¼ glove in Russia and the opportunity cost of 1 hat is equal to 2 gloves in Panama. It benefit if Panama export its hats to Russia and import gloves from Russia than manufacturing themselves. The ratio of production of hats and gloves is just opposite from each other in average. It would be profitable to both of the nations if they start trading of their needed products of a good quality rather than manufacturing it in less number or without getting profit. Each country has their own unique method of trade. It can also defined as a international trade where both countries gets benefit by trading in order for them.
References
O'Sullivan, Steven M. Sheffrin & Stephen J. Perez (2014). Microeconomics: Principles, Applications and Tools (8th Ed.). Boston: Pearson.
Campbell McConnell, Stanley Brue & Sean Flynn (2014). Microeconomics: Principles, Problems & Policies (20th Ed.). New York: McGraw-Hill Education.
Robert S. Pindyck & Daniel L. Rubinfeld (2012). Microeconomics (8th Ed.). New Jersey: Pearson.
N. Gregory Mankiw (2014). Principles of Microeconomics (7th Ed.). Ohio: South-Western College Publication.
