economic

Topics: Marginal cost, Economics, Costs Pages: 3 (306 words) Published: June 14, 2014

Question 1
(a)
Price
(P,$’000)
Quantity
(minutes)
Total Revenue
(TR,$’000)
Marginal Revenue
(MR,$’000)
Total Cost (TC,$’000)
Marginal Cost (MC,$’000)
Average Cost
(ATC,$’000 per minutes)
90
100
9000
---
5000
---
50
80
120
9600
30
5500
25
45.83
70
140
9800
10
5700
10
40.71
60
160
9600
-10
6000
15
37.5
50
180
9000
-30
6400
20
35.56

(b) The market structure of television broadcasting industry is oligopoly. As the television broadcasting industry requires license given by government, so it has barriers to enter the industry. Also, there is only three television broadcasting companies in the market, the industry just exists a few sellers. Moreover, to the commercial companies, advertising services from different broadcasting company are differentiated. That means the products are differentiated to the buyers.

(c) When MC equals MR, the profit is maximized. From the above table, when output level is 140 minutes, marginal revenue equals marginal cost ($10000=$10000), so the profit-maximizing level of output is 140 minutes.

(d) When the industry exists positive economic profit, it will attract new firms to enter into the industry. However, no more licenses will be offered by government, so no any new firm entering the industry.

(e)(i) Collusion is a formal or tacit agreement to limit competition by setting output quotas, fixed prices and limited promotion.

(e)(ii) Product differentiation means that each firm makes a product that is slightly different from the products of competing firms. A television broadcasting company could provide better quality or design of commercial advertisement to differentiate its product.

Question 2

(a)(i) GDP at current market price in 2012 (Expenditure approach): 100+120+130+90-80+100-90+110
=$480 million

GDP at current market price in 2012 (Income approach)
130+80+100+120+40+10
= $480 million

(a)(ii) Real GDP in 2012:
480/125 X 100
=$384 million...
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