Question 1:Explain and illustrate with diagrams the differences between diminishing marginal returns...

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Question 1:Explain and illustrate with diagrams the differences between diminishing marginal returns and decreasing economies of scale and cite causes and examples.(10 marks – 2.5 marks diagrams, 2.5 marks for explanation, 5 marks for causes / examples)Question 2Suppose the jeans industry is an oligopoly in which each firm sells its own distinctive brand of jeans., and each firm believes its rivals will not follow its price increases but will follow its price cuts.Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?(5 marks for the correct demand curve and 5 marks for the correct explanation)Question 3:  	Discuss the following statement: ‘In the real world there is no industry which conforms precisely to the economist’s model of perfect competition. This means that the model is of little practical value’. (2.5 marks)     	Illustrate with a diagram and explain the short-run perfectively competitive equilibrium for both (i) the individual firm and (ii) the industry; (2.5 marks for diagram and 2.5 marks for explanation)     	Illustrate with a diagram and explain the long-run perfectly competitive equilibrium for the firm   (2.5 marks).Question 4: 	Explain and illustrate using a diagram why a monopolist would never produce in the inelastic range of the demand curve. (3 marks for explanation, 3 marks for diagram)     	In each of the following cases, state whether the monopolist would increase or decrease output:    	Marginal revenue exceeds marginal cost at the output produced; (2 marks)  (ii) Marginal cost exceeds marginal revenue at the output produced. (2 marks)Question 5: 	Outline a micro-economic reform issue that is relevant to the Australian economy (i.e. why has there been reform in this industry or market? (5 marks)     	How successful do you think these reform measures were and say why referring to some data or research that has been performed (5 marks).

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	Course Description: BUECO1507 Business Microeconomics
Assignment Questions (Semester 1, 2012)
Microeconomics – Worth 20% of total assessment:
Answer all five (5) of the following questions.  Each question is worth 10 marks.
Question 1:
Explain and illustrate with diagrams the differences between diminishing marginal returns and decreasing economies of scale and cite causes and examples. 
Diminishing marginal returns applies in the short run when 1 factor is unchanged. It means that as we increase the amount of variable input, the additional output generated will fall after a certain point.  It is shown as a falling MP curve and up sloping total output curve that rises at a decreasing rate. 
Decreasing economies o scale are also called diseconomies of scale and operate in the long run. They are shown as rising part of the long run average cost curve (LAC). These show that as  output rises, with all inputs variable the average costs will rise due to various reasons :
· Managerial diseconomies-when managers are unable to handle a large labour force
· Burdened and overworked labour causes efficiency to fall
(10 marks – 2.5 marks diagrams, 2.5 marks for explanation, 5 marks for causes / examples)
Question 2
Suppose the jeans industry is an oligopoly in which each firm sells its own distinctive brand of jeans., and each firm believes its rivals will not follow its price increases but will follow its price cuts.  
Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another? 
(5 marks for the correct demand curve and 5 marks for the correct explanation)
This is the kinked demand model where the demand curve facing a firm has a kink at price P*. Above this price any price hike is not followed by rivals, but if the firm reduces price below P* rivals also reduce prices.

Question 1: Explain and illustrate with diagrams the differences between diminishing marginal returns and decreasing economies of scale and cite causes and examples. (10 marks – 2.5 marks diagrams,...

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