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1. Because it has a large BoP deficit with the EU, which is not able to be protected against. Complete protectionism will solve the BoP deficit, at huge cost, but since the EU is now a single economic community, that acts in a different way that would make protectionism impossible (not "against rules", but actually impossible).
2. Can somebody guide me in the right direction with respect to this question?

You are given the following information about a particular industry:
Qd=6500-100P
Qs=1200P
TC(q)=722+q^2/200

Where QD is the market demand, QS is the market supply and TC(q) is the firm total cost function.
Assuming that all firms are identical, and that the market is characterized by pure competition,
(a) Find the equilibrium price, the equilibrium quantity, the output supplied by each firm and the profit of the firm in the short run.
(b) Would you expect to see entry into or exit from the industry in the long-run? Explain. What effect will entry or exit have on market equilibrium?
(c) What is the lowest price at which each firm would sell its output in the long run? Short run? Is profit positive, negative or zero at this price? Explain.
3. Hello,

a) Equilibrium price is found when Q(s)=Q(d), so just set up a simple algebraic solution to it. Then you can plug the value for price back into one of the Q formulas to get equilibrium quantity. The firm will try to supply as much of this equilibrium quantitiy as possible, up until the point where profit margins drop to zero. Hence, you need to find the Marginal cost, and that can be done by taking the derivative of TC with respect to Q. Then just set this equal to MR, which is the derivative of TR, which comes down to being P (MR=P). So when MC=P, that is the quantity the firm will be supplying. Then plug this quantity back into TC to see how much it costs the firm to supply this amount, and compare it to TR. If TC>TR, the firm is making (abnormal) profits.

(sorry about the length and complicity of this, but I can't see and easier way to explain it.Someone else might have a better explanation.)

b) If the firm would be making abnormal profits (nudge nudge), what would you expect in terms of entries and exits? Remember that we are operating on a perfect competition framework, so there are no barriers to entry and exit. If a firms enters or exits, what would happen to the market?

c) The critical point here is the difference in short and long run. In short run, factors are fixed, and so there are actually barriers to entry, as firms cannot re-structure their capital. In the long run, factors a flexible, and firms can get into any business they want. This means that in the short run, if one has abnormal profit, it would be hard to challange that, while in long run...

Hope that helps, let me know if you just want the answers straight and simple.
4. ok... so, here's what I have

Equilibrium Price:
Qd = Qs
6500 – 100P = 1200P
6500 = 1300P
P = 5

Quantity:
Qd = 6500 – 100P
= 6500 – 100(5)
= 6500 – 500
= 6000

Output Supplied by the firm:
Qs = 1200P
= 1200(5)
= 6000

Profit:
TC(Q) = 722 + Q2/200
= 722 + (6000)2/200
= 722 + 180,000
= 180,722

TR(Q) = 5 x 6,000
= 30,000

TP(Q) = TR – TC
= 30,000 – 180,722
= (150,722)

b) If the firm would be making abnormal profits (nudge nudge), what would you expect in terms of entries and exits?
If the firm were making abnormal profits, then more and more firms would want to enter the industry, reducing profits to zero.

However, this firm is making negative profits, which means that firms would want to exit this industry.

c) The critical point here is the difference in short and long run. In short run, factors are fixed, and so there are actually barriers to entry, as firms cannot re-structure their capital. In the long run, factors a flexible, and firms can get into any business they want. This means that in the short run, if one has abnormal profit, it would be hard to challange that, while in long run...

Long run = we want the price when the total profit is zero, because in the long-run in a perfectly competitive environment, profits are non-existent. Therefore, we set total revenue equal to total cost. TR = P*Q, whereas TC = 722 + (Q^2)/200. Then, taking either the Qs or the Qd equations (most likely Qs since it's easier), we can sub in P = Qs/1200 in the TC and TR equations. So, since TR = TC, then:
(Q/1200)*Q = 722 + (Q^2)/200
Q^2/1200 - Q^2/200 = 722

However, I can't solve this b/c I get a negative number. hmmm.... I wonder if it's a mistake I made or if the question itself is set up this way.

Thanks for the help.
5. Just a little question.

An LDC government subsidises certain manufactured goods to promote exports. The short run effect of this is likely to include:
I. lower profits
II. more specialisation among manufacturing employees
III. higher incomes.

A. I only; B. I and II; C. II and III; D. I, II, and III

I know the answer is C but I can't seem to understand why ...
6. C because the firm's costs will be lower than without a subsidy. So their profits will be larger. And presumably some of this greater profit is distributed to workers through wages and possibly to shareholders through dividends.
7. Semanort,

You are correct in the first part of a) but you assume that the firm is the only supplier in the market. 6000 units are supplied and demanded, but "our" firm will only have a small share of that. How big share depends on what is profitable for the firm to supply. As you just have shown, supplying the full amount would lead to negative profits, so at what level of supply will the firm make most profit? The answer is at MC=MR, so you will need to find this point. Remember that MC is the derivative of TC(dQ/dC), and MR is the derivative of MR (dQ/dR).

You should reach a value lower than 6000, meaning that the firm only supplies a portion of the market. You should also reach a positive figure for profit, indicating that the firm is earning abnormal profits...

Solve that and part b) and c) should be much easier.
8. Hi,
can somebody help me with this question that i've been set by my teacher. i've look thru my class notez and internet sites but am stil very confused.
really appreciate it if somebody can help me with the question/

'Discuss whether greater competition is likely to increase efficiency in markets.'
9. (Original post by LikkleShorty)
Hi,
can somebody help me with this question that i've been set by my teacher. i've look thru my class notez and internet sites but am stil very confused.
really appreciate it if somebody can help me with the question/

'Discuss whether greater competition is likely to increase efficiency in markets.'
10. how does "increased competition in manufactured goods" cause globalisation?

Thank you xx
11. (Original post by Wai``Hou!)
how does "increased competition in manufactured goods" cause globalisation?

Thank you xx
Hmm, I would have thought it was the other way round - globalisation results in increased competition in manufactured goods Umm...maybe the increased competition forces companies to cut costs by buying cheaper factors of production from other countries (eg if UK manufacturers are losing out to Chinese manufacturers, they can become more competitive by moving their factories to China to take advantage of cheap labour there). They can also outsource their administration and accounting services to India to reduce costs. The increased competition will them to practice fragmented production, which causes globalisation. It's like, if you can't beat 'em, join 'em Not sure if this is right or not though...ask teacher!!

what does fragmented production actually mean? why would it result in increased two-way trade of similar items?

tell me if my explanation is right..

Since more and more firms are building plants at all over the world, so when one of the plants is out of a particular stock, they would ask another plant which is at another country to transfer the stocks to them.. so the two-way trade of similar items are increasing nowadays..

Is this correcct?
13. I think what he meant by framented production is to break down the production processes into different bits and do each bit in the country where its cheapest. So the most labour intesive parts might be done abroad for example.
14. (Original post by biggie-n)
I think what he meant by framented production is to break down the production processes into different bits and do each bit in the country where its cheapest. So the most labour intesive parts might be done abroad for example.
Spot on. So MNCs can exploit each country's comparative advantage to the max - if Chinese labourers are particularly good at making shoelaces, and Malaysian labourers are great at making shoe soles, a shoe company can have factories in both countries and have everything assembled somewhere else. Silly example, but you know what I mean BTW, I'm a girl

(Original post by Wai``Hou!)

Since more and more firms are building plants at all over the world, so when one of the plants is out of a particular stock, they would ask another plant which is at another country to transfer the stocks to them.. so the two-way trade of similar items are increasing nowadays..

Is this correcct?
TBH I'm not very sure about this...it seems more logical for a firm to have many factories in different countries each producing different things, instead of many factories being jack-of-all-trades and trading back and forth with each other. Wouldn't it be better for Toshiba to have a factory in Japan producing laptops (if that's what Japanese are good at) and another factory in the US producing fiberoptic cables (if that's what Americans are good at)? I think what our teacher may have meant was two-way trade of similar items between different firms has increased, not within one firm itself. So Toshiba exports laptops to the US and HP exports their own laptops to Japan.

But now that I think about it, it kinda makes sense...if Toshiba has factories in both Japan and the US, Toshiba can produce laptops in each factory and that way it'll never run out of laptops to sell...if there's a shortage in Japan they can just ship laptops from their US factory over. Maybe this is some sort of Just-in-time production technique - Toshiba's factories won't need to keep large stocks of laptops in their warehouses because if Japan runs out of laptops and the Japan factory is running at full capacity, they can get the American factory to manufacture the laptops instead. It probably increases efficiency too because any spare capacity in the factories can be utilised to meet demand for either the Japanese or American market. Yes I'm rambling Maybe we should ask teacher to clarify this again...
15. I thought having plants at different corners of the world is a kind of exploitation of geographical advantage? For instance, when Toshiba receives orders from msia, they can ship the laptops over to msia from its plant at china instead of the American plant..this can lower transportation costs..
so it makes sense for toshiba to have its plants producing the same products??

yes maybe she meant between different firms..lol..
yes, I'm totally confused!! haha...
BTW, I'm a girl
Apologies. There were no girls in my economics class and the ratio of boys:girls in my uni faculty is probably something like 10:1!!!
17. (Original post by Wai``Hou!)
I thought having plants at different corners of the world is a kind of exploitation of geographical advantage? For instance, when Toshiba receives orders from msia, they can ship the laptops over to msia from its plant at china instead of the American plant..this can lower transportation costs..
so it makes sense for toshiba to have its plants producing the same products??

yes maybe she meant between different firms..lol..
yes, I'm totally confused!! haha...
Yeah that definitely makes sense The thing is she told my class that the factories actually ship laptops to each other...Japanese factory to America and vice versa...so there wouldn't be any transportation cost savings...unless I heard wrongly lol...But I think you're right, there will definitely be transportation cost savings assuming the Chinese plant is supplying the Asian market and the American plant is doing the same for the Americas.

(Original post by biggie-n)
Apologies. There were no girls in my economics class and the ratio of boys:girls in my uni faculty is probably something like 10:1!!!
Haha it's okay Are you at Cambridge now? I didn't know there were so few girls doing econs!
Haha it's okay Are you at Cambridge now? I didn't know there were so few girls doing econs!
haha.. I was wondering about that as well..

Haha it's okay Are you at Cambridge now? I didn't know there were so few girls doing econs!
I was exaggerating, but there are definitely a lot more boys
20. What is the effect of over-reliance on these sectors (esp tourism/ agricultural) in a developing country?

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