Task 1: Elasticity
Consider the following two products: 3D television and prescription. Which product would have a higher price elasticity of demand in absolute value? Explain your answer including identifying the determinant of elasticity
Consider the following two products: Coffee sold in a café or electricity (assume limited excess capacity). Which product would have a higher price elasticity of supply in absolute value? Explain your answer including identifying the determinant of elasticity. Coffee sold in a café or electricity (assume limited excess capacity)
In the following graph, the demand for tyres has shifted to the left because the price of cars has increased from, on average $25,000 to $35,000 per car. Use the graph to answer question 3.
Calculate the cross-price elasticity of demand between tyres and cars. Show your calculations and explain your answer in words.
- The federal government applies a licence fee on every ‘television network’ of 1 million AUD.
- Samsung signs a new contract changing the price it pays for ‘power boards’ that are used in its TVs
Read the following excerpt and answer question 3.
Airbus and Dreamliner Battle for Air Space
The world’s largest passenger plane [Airbus] has proven to be the most expensive civilian airplane ever developed. Airbus claims its fuel efficiency, control system and sound-reduction technology also make it the most advanced airliner ever built. The Dreamliner travels the same distance as the A380 [Airbus] at the same speed but carries half the passengers.
Author: Davin Coburn Jun 15, 2010
3. You are an executive in an airline company that uses both Dreamliner and Airbus planes. Thinking of the long run, when might it be best to use the Dreamliner? When might it be best to use the Airbus? Use the long run average total cost curve in explaining your answer
Task 3: Market Power
Graph and explain the situation for Adidas if it was the only seller of exercise running shoes in Australia. Contrast this with the situation when many other brands enter the market selling similar products. Use a graph and explain your answer. When drawing graphs assume the firm is in the long run
There are many cattle farms in the world, and there are also many McDonald’s restaurants in the world. Why, then, does a McDonald’s restaurant face a downward-sloping demand curve while a cattle farms face a horizontal demand curve? How would this situation change if there were two McDonalds restaurants located next to each other?
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Task 4: Business Strategy
Consider the example where Jim’s coffee (they seem to sell everything else) wants to open a store but a major existing company Stars and Coffee threatens Jim’s by saying if you enter I will charge lower prices. The pay-off matrix is below. Answer questions 1 to 5.
- Define dominant strategy
- Does Jim’s coffee have a dominant strategy? Explain.
- Does Stars and Coffee have a dominant strategy? Explain.
- Define Nash equilibrium. What is (are) the Nash equilibrium(s) in this game. Explain.
- Should Jim’s coffee believe Stars and Coffee threat? Explain.