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Week+6 Tutorial+Questions

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34 views5 pages

Week+6 Tutorial+Questions

Uploaded by

CHIAYEE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ECO10004: ECONOMIC PRINCIPLES

WEEK 6_TUTORIAL QUESTIONS


Key concepts: Market structures, Perfect Competition,
Monopolistic Competition, Oligopoly, Monopoly, Marginal
Revenue
Short-answer Questions
Question 1) Harry owns and operates a dairy farm business in
Victoria. There are more than 3,000 dairy farms in the state
as of 2021 (Dairy Australia, 2021).
Harry as well as his competitors all sell their farm-gate cow
milk to numerous milk processing plants in the state. These
plants process raw milk into drinking milk, then sell it to
major supermarkets across Australia. Millions of consumers
in Australia buy the final product (milk in bottles or
cartons) from the supermarkets.
Assume that all farm-gate cow milk sold by farmers are
exactly the same. This is a reasonably fair assumption.
Required:
√
a. What market structure (perfect competition,
monopolistic competition, oligopoly or monopoly) do
you think would best describe the dairy industry in
Australia?
Clearly explain why.
b. Harry and all other farmers have been selling their milk
at 65 cents per litre. This month, Harry decides to
raise the price of his milk to,
70 cents per litre. All
other farmers keep selling at the old price.
What would happen to Harry’s sales this month?
What does it tell you about the demand for Harry’s
milk?
How would you illustrate the demand curve for
Harry’s milk on a graph?
c. In July 2021, Harry had a particularly successful month.
His milk output in July reached 220,000 litres. This
was 50,000 litres more than his monthly average.
What should Harry do to sell the extra 50,000 litres of
milk his farm produced in July?
Note that milk production in Victoria averages 50
million litres each month.
d. In August 2021, demand for farm-gate milk surged
fuelled by China’s soaring appetite for dairy products
from Australia.
Milk processors started to buy farm-gate milk,
converted it to milk powder and exported it to China.
This was in addition to the amount they would
normally buy to produce drinking milk for
supermarkets.
What would happen to the equilibrium price and
quantity in the market of farm-gate milk in Australia
as a whole? Clearly explain.
What would happen to the price and quantity for
Harry’s milk in particular?
Would Harry have a shot at making some economic
profit?
e. Would Harry be able to sustain his economic profit for
long?
What would likely happen that would drive Harry’s
economic profit away?
Clearly explain.
f. If Harry was determined to reclaim a part of his
previous economic profit, what should he do? Clearly
Questions 1 :

A) Perfect competitions

B) Harry’s sales of this month will decrease. Because the price of milk
that sell by Harry was expensive than other seller . So consumers will
choose to buy with other seller.
The demand for Harry’s milk will decrease.
For perfect competitions, seller can’t setting the price for their
product. Seller must follow market price.

C) In perfect competitions, seller need to follow market price to sell


their product. So, Harry can sold his extra 50000 liter of milk if he
follow market price.

D) The price of milk will increase and quantity demanded also will increase.

Harry need to sell milk according to market price, if market price of milk
increase,Harry also need to increase selling price of his milk.

E) The barriers to entry in perfect competitions market are low.New firm can
easily join this industry.
Economic profits in dairy industry will attract more seller to join the industry.
When the seller of dairy industry increase, the supply of milk also will increase.
Therefore the economic profit will be able to maintain.

F) Harry need to reduce his total cost in order to increase economic profit.
Page 1 | 1

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2d) There are many seller and buyer in perfect competitions market.
Seller are price takers they needs to sell their product according to the
market price .
3 a)

3b) Monopoly competitions market would best describes the market of


Oscar’s coffee shop.
Most critical difference between Harry’s dairy farm and Oscar’s coffee
shop :
• Oscar can sell different taste and appearance of coffee for his
customers.
• Harry only can sell identical cow milk.

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