Assignment 08c13 Microeconomics Directions Be Sure To Save

Assignment 08c13 Microeconomicsdirections Be Sure To Save An Electro

Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Answer in complete sentences, use correct English, spelling, and grammar, and cite sources in APA format. The response should be four double-spaced pages, following the "Assignment Format" guidelines provided on the Course Home page.

Paper For Above instruction

In this assignment, you are asked to analyze a hypothetical scenario set in the year 2199 involving the development of a new plutonium engine by the Futures Unlimited Corporation, which monopolizes the market for plutonium-fueled transportation. Your analysis should encompass the economic implications of this monopoly, specifically focusing on profit maximization, the firm's decision-making regarding output and pricing, as well as contrasting the impact of tariffs and quotas on consumers. Additionally, the assignment requires evaluating the opportunity costs of glove and hat production in Panama and Russia and assessing the potential benefits or drawbacks of trade between these two countries.

Economic Outcomes of a Monopolistic Market and Firm Decision-Making

The formation of a monopoly by Futures Unlimited Corporation on plutonium-fueled transportation in 2199 results in an economic environment characterized by restricted competition and market power concentration. As a single-price monopoly, the firm maximizes profits by setting a price above marginal cost, where marginal revenue equals marginal cost, therefore producing less output at a higher price than in a competitive market. This causes a deadweight loss, reflecting lost welfare to consumers and society. The revenue generated by the monopoly is higher than would be possible under competitive conditions, but overall efficiency declines, leading to a transfer of welfare from consumers to the firm (Mankiw, 2020).

One supporting fact is that monopolists limit output to raise prices, which increases their profits but decreases social welfare (Varian, 2019). The firm's profit is maximized at the point where marginal revenue equals marginal cost, ensuring that the additional revenue from selling one more unit is exactly offset by the additional cost of producing that unit (Pindyck & Rubinfeld, 2018).

Futures Unlimited Corporation’s Output and Price Decisions

The Futures Unlimited Corporation is likely to utilize a profit-maximizing strategy by analyzing marginal revenue and marginal cost to determine its output level and set the price accordingly. Given its monopoly power, the company would compute the optimal quantity where marginal revenue equals marginal cost and establish a price based on the demand curve at that quantity (Pindyck & Rubinfeld, 2018). This approach allows the firm to extract maximum profit, often resulting in higher prices and lower quantities than competitive markets. Additionally, the firm may employ strategic considerations such as market segmentation or future price expectations to influence its output and pricing decisions further (Varian, 2019).

Impact of Tariffs versus Quotas on Consumers

Consumers tend to benefit more from tariffs compared to quotas because tariffs generate government revenue, which can be redistributed or used to fund public programs, potentially offsetting some consumer costs. Quotas, however, strictly limit import quantities without generating revenue; this often leads to higher prices and reduced choices for consumers (Krugman, Obstfeld, & Melitz, 2018). Moreover, tariffs have the potential to be adjusted or repealed, providing flexibility, whereas quotas are rigid and restrict supply regardless of market conditions.

Supporting fact: Tariffs tend to increase government revenue and can be targeted to encourage domestic production, while quotas primarily create scarcity and elevate prices without generating revenue, directly impacting consumer welfare negatively (Culem, 2019).

Opportunity Costs of Glove and Hat Production in Panama and Russia

The opportunity cost for each country involves analyzing what must be foregone to produce additional units of gloves or hats. Suppose Panama can produce 100 gloves or 50 hats weekly, while Russia can produce 200 gloves or 100 hats weekly. For Panama, the opportunity cost of producing one glove is 0.5 hats (50 hats / 100 gloves), and producing one hat costs 2 gloves (100 gloves / 50 hats). For Russia, the opportunity cost of one glove is 0.5 hats (100 hats / 200 gloves), and one hat costs 2 gloves (200 gloves / 100 hats). These figures suggest comparable opportunity costs, indicating potential gains from trade.

Should Panama and Russia Trade?

Based on comparative advantage, Panama has a lower opportunity cost in producing hats relative to gloves if it is more efficient at producing hats per unit of other goods. Conversely, Russia has a comparative advantage in gloves, given its higher production capacity with lower opportunity costs for gloves. Trade would allow each country to specialize in the good where they have a comparative advantage, thereby increasing total production and consumption possibilities. For example, Panama could focus on producing hats, and Russia on gloves, trading the excess production to both benefit (Krugman et al., 2018). This specialization increases overall efficiency and welfare, justifying trade between the two nations.

Conclusion

The scenario underscores the importance of market structures and trade policies in shaping economic welfare. The monopoly created by Futures Unlimited demonstrates how market power can lead to welfare losses despite increased profits. Firms' output and pricing decisions are driven by profit maximization strategies that influence market prices. Debates over tariffs and quotas reveal differing implications for consumer welfare, emphasizing the utility of tariffs in certain contexts. Lastly, comparative advantage remains a fundamental principle justifying international trade, illustrating how countries can benefit from specialization based on opportunity costs, ultimately enhancing global economic welfare.

References

• Culem, C. (2019). The impact of tariffs and quotas on international trade. Journal of International Economics, 112, 27–39.
• Krugman, P., Obstfeld, M., & Melitz, M. (2018). International Economics (11th ed.). Pearson.
• Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
• Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics (9th ed.). Pearson.
• Varian, H. R. (2019). Intermediate Microeconomics: A Modern Approach (10th ed.). W.W. Norton & Company.