Due Date:28-January-2020 Length:2000 words Submission method:Turnitin (online) Answer all four...

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Due Date:28-January-2020  Length:2000 words  Submission method:Turnitin (online)    Answer all four (4) questions. Maximum of 500 words for each question. Use diagrams where appropriate to enhance and explain your response. Provide supporting evidence and references where appropriate to justify your arguments. Please note that in answering economics questions it is important to first identify which part of economic theory you should be drawing on in order to respond appropriately. Your response should always be firstly identifying what part of theory the question relates to and explaining that theory, how the theory helps to answer the question and then presenting the solution to the question poised.  Question 1. Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.  Question 2. Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run?  Question 3. For a high-income economy like Australia, what aggregate production function elements are most important in bringing about growth in GDP per capita? What about a middle-income country such as India? A low-income country such as Afghanistan?  Question 4. Imagine that the government statisticians who calculate the inflation rate have been updating the basic basket of goods once every 10 years, but now they decide to update it every five years. How will this change affect the amount of substitution bias and quality/new goods bias?  Presentation  The following points are a general guide for presenting assessment items.    Responses to assessment      items should be typed. Use 1.5 spacing.  Usea wide left margin.      Markers need space to be able to include their comments. Use a standard      12pt font such as Times New Roman, Calibri or Arial.  Left- justify body text.  Include a separate title      page with your name, student number, subject code, assessment question.      Number your pages (except the cover page).  Usea header or footer      with your name and student number on each page.  Alwayskeep a copy of      your assessments. Both a hard copy and an electronic copy.  Mostimportantly,      always use your spelling and grammar checker, but remember that this does      not pick up all errors. You must still manually and carefully edit your      work.  You need to appropriately      reference all the articles, reports and web-sites you employ in developing      your assignments.   Please see the next page for the assignment marking criteria.       Marking criteria for the assignment          Criteria         HIGH DISTINCTION   85%-100%         DISTINCTION   75%-84%         CREDIT   65%-74%         PASS   50%-64%         FAIL                Work applies principles of economics correctly to   realistic situations.         Applies correct economic principles, analysis is   substantiated with workings, and calculations in order to arrive at the right   answer. There are negligible errors/no errors in calculations.         Applies correct economic principles, description   is substantiated with workings, and calculations in order to arrive at the   right answer. There are negligible errors/no errors in calculations.         Applies correct economic principles, description   is substantiated with workings, and calculations in order to arrive at the   right answer. There are minor errors in calculations.         Applies correct economic principles, shows   workings and calculations but contains some errors.         Applies limited or no understanding of relevant   principles. Working and calculations are either not shown or contain major   errors.             Use diagrams in your answers to provide a more   comprehensive response.         Diagrams created by students are correctly and   precisely labelled, relevant to the specific question, and used appropriately   to demonstrate their high-level understanding of all key economic concepts   and principles.         Diagrams created by students are correctly and   clearly labelled, relate to the specific questions and demonstrate a clear   understanding of all key economic concepts and principles.         Diagrams created by students are correct with an   attempt at labelling that maybe unclear/incorrect, and demonstrate an   understanding of most of the key economic   concepts and principles required in this task.         Diagrams created by students are mostly correct   with an attempt at labelling, are relevant to the specific question, and   demonstrate some understanding of basic economic concepts and principles.         No diagrams provided or they are incorrect,   poorly labelled or irrelevant to the specific question. The diagram fails to   demonstrate the students understanding of economic concepts and principles.             Work applies principles of economics correctly in   discussing results, conclusions, and/or recommendations.         Principles are applied in the appropriate manner   to arrive at the correct answer. Written work shows analysis in order to   interpret and make highly complex recommendations relating to economic   principles covered in   this subject.         Principles are applied in the appropriate manner   to arrive at the correct answer. Written work attempts to analyse, and shows   the ability to interpret and make recommendations to economic principles   covered in this subject.         Principles are applied in the appropriate manner   to arrive at the correct answer. Written work shows the ability to interpret   and make   some key recommendations to economic principles   covered in this subject.         Discussion reflects basic understanding of   relevant principles. Some inclusion of relevant recommendations.         Principles are not applied appropriately; correct   answer is not provided. Written work does not make suitable/relevant   recommendations to economic principles covered in this subject.             Information, spelling, grammar and written   expression is set out in a coherent manner, with professional presentation.   Appropriate use of font, formatting, diagrams etc., where relevant.          Pass   Sustained, consistent and logical presentation of   work.   Accurate spelling and grammar, excellent written   expression and syntax.   Appropriate referencing of articles and   web-sites.            Structure of work does not demonstrate a   consistent and logical presentation format. Inaccurate spelling and use of   grammar, inconsistent written expression. Incomplete or inaccurate   referencing.

Dr. Smita · Accepted Answer

Question 1. Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.
Answer:
Price elasticity of demand refers to the alertness of the consumer to respond to the change in the price of a product. It is a universal rule that the price of a product is inversely related to the quantity demanded. This implies that if the price of the product increases, its quantity demanded decreases and vice versa. But, the magnitude of the change in the quantity demanded when the price of the product changes is measured by the price elasticity of demand. When a smaller change in price brings a larger change in quantity demanded, the product is said to be price elastic and when the change in the price does not changes the quantity demanded, the demand for the product is said to be inelastic. The price elasticity of demand depends on a lot of factors that influence the demand of consumers. Some of them are listed below: (Senthil Et.al 2016)
1. Nature of commodity
2. Share of the commodity in the total budget of the consumer
3. The income of the consumer
4. Number of uses of the commodity
5. Habit and preference of the consumer
6. Time available to adjust the consumption
Price elasticity of demand is mathematically calculated as follows:
Where Qd is Quantity demanded and P is the Price.
Every business firm has one basic objective, which is to maximize its total revenue. The price elasticity of demand and a firm’s revenue is related. The relationship between the price elasticity of demand and revenue is given as follows: (Sambithamby 2016)
(i) When the price elasticity of demand is elastic, percentage changes in price lead to a larger change in demand and thereby a larger change in the total revenue.
(ii) When the price elasticity of demand is inelastic, percentage changes in price leads to a smaller change in demand and thereby a smaller change in the total revenue.
In the given case,
(i) Price Elasticity of Demand= 1.4
(% Change in Qd / % Change in P)= 1.4
1% change in Price = 1.4% change in Qd
A 1% change in price leads to a larger change in quantity demanded. Therefore, it is advised that the firm should not increase the price because a smaller increase in price will lead to a larger fall in the quantity demanded. However, the firm can decrease the price.
(ii) Price Elasticity of Demand = 0.6
(% Change in Qd / % Change in P)= 0.6
1% change in Price = 0.6% change in Qd
A 1% change in price leads to a smaller change in quantity demanded. Therefore, it is advised that the firm may increase the price because a proportionate increase in price will lead to a smaller decrease in the quantity demanded. In the given case, the price elasticity of demand is inelastic and increasing price would lead to an increase in the total revenue.
(iii) Price Elasticity of Demand= 1.4
(% Change in Qd / % Change in P) = 1
1% change in Price = 1% change in Qd
A proportionate change in the price would lead to a similar change in the quantity demanded. Hence in such circumstances, it is advisable that the firm will advantage of increasing or decreasing prices. 
Question 2. Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run?
Answer:
In economics, the long-run period is defined as the time period when all the factors of production that the firm employs are variable. Hence, the firm has the freedom to change all the factors of production and can achieve the best possible input-output ratio. Therefore, in the long run, the production firm can achieve a minimal cost of producing the given level of output. (Fiona, 2010)
Average cost refers to the per-unit cost of producing an output. It is derived by dividing total cost with the total units of output produced.

Due Date: 28-January-2020 Length: 2000 words Submission method: Turnitin (online) Answer all four (4) questions. Maximum of 500 words for each question. Use diagrams where appropriate to enhance and...

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Criteria	HIGH DISTINCTION 85%-100%	DISTINCTION 75%-84%	CREDIT 65%-74%		PASS 50%-64%	FAIL
Work applies principles of economics correctly to realistic situations.	Applies correct economic principles, analysis is substantiated with workings, and calculations in order to arrive at the right answer. There are negligible errors/no errors in calculations.	Applies correct economic principles, description is substantiated with workings, and calculations in order to arrive at the right answer. There are negligible errors/no errors in calculations.	Applies correct economic principles, description is substantiated with workings, and calculations in order to arrive at the right answer. There are minor errors in calculations.		Applies correct economic principles, shows workings and calculations but contains some errors.	Applies limited or no understanding of relevant principles. Working and calculations are either not shown or contain major errors.
Use diagrams in your answers to provide a more comprehensive response.	Diagrams created by students are correctly and precisely labelled, relevant to the specific question, and used appropriately to demonstrate their high-level understanding of all key economic concepts and principles.	Diagrams created by students are correctly and clearly labelled, relate to the specific questions and demonstrate a clear understanding of all key economic concepts and principles.	Diagrams created by students are correct with an attempt at labelling that maybe unclear/incorrect, and demonstrate an understanding of most of the key economic concepts and principles required in this task.		Diagrams created by students are mostly correct with an attempt at labelling, are relevant to the specific question, and demonstrate some understanding of basic economic concepts and principles.	No diagrams provided or they are incorrect, poorly labelled or irrelevant to the specific question. The diagram fails to demonstrate the students understanding of economic concepts and principles.
Work applies principles of economics correctly in discussing results, conclusions, and/or recommendations.	Principles are applied in the appropriate manner to arrive at the correct answer. Written work shows analysis in order to interpret and make highly complex recommendations relating to economic principles covered in this subject.	Principles are applied in the appropriate manner to arrive at the correct answer. Written work attempts to analyse, and shows the ability to interpret and make recommendations to economic principles covered in this subject.	Principles are applied in the appropriate manner to arrive at the correct answer. Written work shows the ability to interpret and make some key recommendations to economic principles covered in this subject.		Discussion reflects basic understanding of relevant principles. Some inclusion of relevant recommendations.	Principles are not applied appropriately; correct answer is not provided. Written work does not make suitable/relevant recommendations to economic principles covered in this subject.
Information, spelling, grammar and written expression is set out in a coherent manner, with professional presentation. Appropriate use of font, formatting, diagrams etc., where relevant.	Pass Sustained, consistent and logical presentation of work. Accurate spelling and grammar, excellent written expression and syntax. Appropriate referencing of articles and web-sites.			Structure of work does not demonstrate a consistent and logical presentation format. Inaccurate spelling and use of grammar, inconsistent written expression. Incomplete or inaccurate referencing.