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Economics, Accounting & Business: Post your doubts here!

abcde

abcde

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Another question: [J/06/3/14]
The maximum price that a privatised natural monopoly is allowed to charge its customers is determined by the following formula:
the price charged in the previous year plus the annual % change in the consumer price index minus 2%.
Assuming the firm charges the maximum price allowed, how will an increase in productive efficiency affect customers and the company's shareholders?

B. customers: gain, shareholders: no effect.
C. customers: no effect, shareholders: gain.

What's the explanation for the correct answer, C?
 
M

MnMz

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Arpit Farkya said:
doubt: S09_qp_1 qno. 5 !!! the answer is (B). i dont get it.
Click to expand...

Because we assume in order to make a relation between price and supply, we do not assume that the price is the same.

You cannot draw an aggregate supply curve without price or with price being constant.

However, you can draw a supply curve with other factors held constant like technology for instant.

Hope you get it.
 
Steel Arm

Steel Arm

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abcde said:
Another question: [J/06/3/14]
The maximum price that a privatised natural monopoly is allowed to charge its customers is determined by the following formula:
the price charged in the previous year plus the annual % change in the consumer price index minus 2%.
Assuming the firm charges the maximum price allowed, how will an increase in productive efficiency affect customers and the company's shareholders?

B. customers: gain, shareholders: no effect.
C. customers: no effect, shareholders: gain.

What's the explanation for the correct answer, C?
Click to expand...
Ok, an increase in productive efficiency would mean an outward shift in the PPC caused by the efficient use of resources... in other words output will increase as cost decreases. The company will benefit from lower costs and greater output = bigger profits = Shareholders gain. However, cost wont necessarily affect price at which the good is sold (the given formula takes no consideration of cost as well in calculating the maximum price), therefore customers will not be affected by such an increase in productive efficiency.
 
A

Arpit Farkya

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MnMz said:
Because we assume in order to make a relation between price and supply, we do not assume that the price is the same.

You cannot draw an aggregate supply curve without price or with price being constant.

However, you can draw a supply curve with other factors held constant like technology for instant.

Hope you get it.
Click to expand...

but we can take out average prices and then draw the supply curve.
 
abcde

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Steel Arm said:
Ok, an increase in productive efficiency would mean an outward shift in the PPC caused by the efficient use of resources... in other words output will increase as cost decreases. The company will benefit from lower costs and greater output = bigger profits = Shareholders gain. However, cost wont necessarily affect price at which the good is sold (the given formula takes no consideration of cost as well in calculating the maximum price), therefore customers will not be affected by such an increase in productive efficiency.
Click to expand...
Right on! :D Thanks!
 
abcde

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Okay, so two more:
1. If someone could justify question 4 from this paper: http://papers.xtremepapers.com/CIE/Cambridge International A and AS Level/Economics (9708)/9708_w06_qp_3.pdf, I'd be much grateful.

2. Secondly, [J/04/3/05]
There is an increase in the supply of female labour. What will be the likely effect on male and female wages?

A. Female wages decrease, male wages decrease.
C. Female wages decreases, male wages increase.

The correct answer is A. My question is: how would male wages decrease? How are they related to female wages in the first place?
 
abcde

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An industry consists of a dominant producer and a number of smaller producers. The dominant producer joins with some of the other producers to form a cartel with a view to maximising their joint profits.
Who will derive the greatest short-run benefit from this arrangement?

A. the industry's suppliers
B. the dominant firm
C. smaller producers within the cartel
D. the producers who do not join the cartel

Why is option D correct?
 
Sarkerms

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abcde said:
An industry consists of a dominant producer and a number of smaller producers. The dominant producer joins with some of the other producers to form a cartel with a view to maximising their joint profits.
Who will derive the greatest short-run benefit from this arrangement?

A. the industry's suppliers
B. the dominant firm
C. smaller producers within the cartel
D. the producers who do not join the cartel

Why is option D correct?
Click to expand...

The reason is because in the short run the non member business can operate as it feels like with no restriction to quantity or price. As a result it may lower the price and sell more or keep the same price and try to sell more. But in the long run the cartel will implement a predatory pricing scheme so the non member businesses will be forced out of the market.
 
abcde

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Sarkerms said:
The reason is because in the short run the non member business can operate as it feels like with no restriction to quantity or price. As a result it may lower the price and sell more or keep the same price and try to sell more. But in the long run the cartel will implement a predatory pricing scheme so the non member businesses will be forced out of the market.
Click to expand...
Got it! Thank you. :)
 
Sarkerms

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abcde said:
What would be the working for question 4 here? http://papers.xtremepapers.com/CIE/Cambridge International A and AS Level/Economics (9708)/9708_w06_qp_3.pdf
Click to expand...

The revenue is 1 so basically average revenue per product is average physical product into 1. Then we multiply the avg product with the number employed. So its 20 for 1 36 for 2 48 for 3. Then we multiply the new wage rate with the no of employees. So when you multiply 16 with 3 it is equal to 48 so the revenue earned by 3 workers (3*16 which is 48) is cancelled out. Hence the business will move on to 2 workers at the rate of 16 which incurs a total cost of 32 but total revenue earned from employing them is 36.
 
abcde

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Sarkerms said:
The revenue is 1 so basically average revenue per product is average physical product into 1. Then we multiply the avg product with the number employed. So its 20 for 1 36 for 2 48 for 3. Then we multiply the new wage rate with the no of employees. So when you multiply 16 with 3 it is equal to 48 so the revenue earned by 3 workers (3*16 which is 48) is cancelled out. Hence the business will move on to 2 workers at the rate of 16 which incurs a total cost of 32 but total revenue earned from employing them is 36.
Click to expand...
So how do you get to the answer B from this explanation? :S Sorry, I still don't see it. :/
 
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