Marginal Product, Influenza - Assignment Example

Running Head: Individual Assignment Individual Assignment Name Course Lecturer Date Question 1 Government institutions dealing with transit matters are constantly involved in the management and policing of shared passenger and for-hire transportation services. Transport is critical for social, environmental and economic achievements and therefore such institutions help to integrate it in strategic development. Services are scheduled and route fixed. Through this, demand forecasting, pricing policy, cost modeling regulatory and appraisal techniques are acquired. Perennial analysis of parameters of cost and demand must follow the dynamic competitive and ownership forms in transport. The role of informal sector as well as personal vehicles is also a major issue that is considered. Regulations force the owners or drivers that are prone to maximize profit to employ and adopt a suboptimal behavior in fare charges (Obeng, & Preston, 2008). The drivers’ assumption is that their customers’ response to the increment of fares depends on elasticity of their wants. Unlike the demand for goods, there is no correlation between the costumers’ responsiveness to the transport service and the change in charges. In this case, the elasticity of want is great. Willingness to pay for the service is more determined by customer’s necessity and consideration of duration such as high and off-peak. To them, as long as the increase in fares does not diminish the willingness to pay for the services by the public, then the government should allow demand elasticity to determine the fares (Oum, Waters, & Yong, 2001). Tax drivers in this case, have a misguided assumption since there is always a small change in demand when they increase the charges. Customers’ necessity and lack of substitute in means of transport are two important scenarios that force them to use taxis. Since the need cannot be postponed there is little option for them than to pay for it. Another important factor they are not considering is that most of government employees depend on the government transport allowances to cater for their fares, thus as long as they are not directly paying for it the demand is inelastic. This will result to pressure on the government to increase the allowances. There are however pressing conditions that drivers and policy makers consider including insurance, jams due to congestion, petroleum and air pollution charges increase in the transport system (Nsw Government. 2010). Question 2 Influenza is a highly contagious respiratory infection which can be contracted by inhaling air that has the virus that causes the infection. Employees working in health facilities may contract the disease from patients suffering from it or if the workers have influenza, they may transmit it to patients. Transmission can be prevented through vaccination of people without it. The Australian government is putting efforts to promote the uptake of influenza vaccination. The main reason of low levels of vaccination is that, most people do not have access to the vaccine and thus availing it is the best way of increasing the uptake[Mar08]. The first way of promoting uptake will be to subsidise the production of the vaccine. This can be done by providing financial support to the producers of the vaccine. By doing so, the cost of production will be low and thus the vaccine will go for a lower price which can be afforded by a big percentage of the Australian population. Without the subsidy, the cost of production would be high and thus producers would charge the vaccine at P. After the subsidy, consumers will buy the vaccine at Pc. The cost that the government will incur will be P- Pc. Fig 1: Private sellers Price P Pc Pp Q Qc Qp Quantity of Vaccine The government can also boost the vaccine’s uptake by directly purchasing it from the producers and selling it to the consumers. In this case, the government will buy at a higher price, pay a part of the cost price and sell it to consumers at a price which is lower than the buying price. This will make the vaccine even cheaper than in the first case. In case the vaccine is not produced within the country, the government should import it and sell it directly to the consumers to avoid exploitation from private vendors. The government’s cost will be Pp-Pc as shown in figure 2. The second way is the most effective way of encouragement because it will avoid discrimination since the vaccine will be availed to everybody. Moreover, the price charged by the government is a bit lower as compared to that charged by private sellers, which makes it more affordable by all citizens. In case of private producers; it is not effective because there is a possibility of charging high prices even after the subsidy. Fig 2: Government as the seller Price Pp Pc Qp Qc Quantity of vaccine Question 3 According to Hirschey (2009, p.251), marginal product refers to the output of one more worker. Diminishing returns of a changeable factor of production takes place in the short term when one of the factors of production is fixed. If a firm increases the variable factor, it reaches a production level where the productivity of the factor declines and thus the marginal as well as average product will eventually decline. The reason behind this is that, if the fixed factor is capital, more employees will have conflicts in their efforts to raise production. For instance, considering the effectiveness of hiring more employees in a hotel, the employment of extra workers may increase production but at a very slow rate. The law of diminishing returns is only applicable in the short term because all factors of production are variable in the long term. Assuming that hiring an extra worker will cost a firm $10, the marginal cost of a product will be gotten by dividing the amount of wage by the extra units of product that are manufactured. Hence, marginal cost (MC) declines as marginal product (MP) goes up. In case of a fertilizer, using a small quantity leads to a high MP and a low MC. However, if the quantity is increased up to Q1, the MP starts to decline while MC increases because extra quantity involves more spending as shown below. Fig 3: Diminishing returns Mankiw (2011, p.273) maintains that, diseconomies of scale takes place in the long-run when doubling the amount of all inputs results in an output increase which is less than twofold. A big firm can experience diseconomies of scale as a result of poor communication within it. Alienation can also be a cause. Diseconomies of scale may also be caused by ineffective control. When an organization has many workers, it becomes easier for them to dodge work because managers are not able to notice it. Minimum efficient scale (MES) is the lowest amount of output that is needed to attain the minimum Average Cost on the Long-run Average Cost (LRAC) curve. Diseconomies of scale are demonstrated by the diagram below. Fig 4: Diseconomies of scale Question 4 Monopoly refers to a market structure with only a single seller who has total control over the market. Being the only one, the seller exercises control on the market’s supply side. On the other hand, perfect competition is a market system where each participant has completely no control over the market. No firm is able to influence the price in the market through any way. Economic efficiency has two main components which are productive and allocative efficiency. To attain productive efficiency, an organization ought to use the methods and production factors which are obtainable, at the lowest achievable cost for each unit of yield. Allocative efficiency is achieved when price (P) equals marginal cost (MC) in all sectors as well as markets in a given economy[Wil11]. Baumol & Blinder (2011) further assert that, in long run, a firm in perfect competition attains both productive as well as allocative efficiency provided economies of scale are not present. The organisation is productively resourceful because it makes the best output at the ATC curve’s lowest point, and is allocatively resourceful because P equals MC. In long-run, the firm ought to be X-efficient because it is, firm operating at unit costs which are above the ATC curve; it is not able to get normal profits. Under perfect competition, to endure and get normal profits, an organisation has to eradicate X-inefficiency. Figure 5 shows economic efficiency under perfect competition in the long-run. Fig 5: Perfect competition in the long-run A firm in a perfectly competitive market can make profits in the short run. This is shown in the below diagram, because the average revenue or price, P exceeds average cost, C[Wil11]. Fig 6: Perfect competition in the short-run On the other hand, a monopolist will vend a lesser amount of commodities at a greater price than firms in perfect competition. Since the monopolist eventually abstains from transactions with buyers who consider a service or a product more important than its price, monopoly pricing generates a deadweight loss. This loss refers to potential profits which were achieved by neither the monopolist nor the buyers. With the deadweight loss, a monopolist and buyers’ joint surplus is automatically lower than the sum surplus achieved by consumers through perfect competition. Where economic efficiency is shown by the overall gains from business activities, the monopoly situation is less efficient compared to perfect competition (Zhao, 2011, p.23). Zhao (2011, p.25) argues that, monopolies usually turn out to be less innovative and less efficient after a while, because it is not a must for them to be innovative or efficient to participate in the market. In some cases, the loss of efficiency can augment the value of a potential competitor enough to conquer market entry obstacles, or give incentive for investment and research into new choices. The economic inefficiency of a monopoly is shown by the figure below. Fig 7: Monopoly and economic efficiency Question 5 According to Hungnes (2011, p.581), the demand of all production factors such as labour, capital and land is derived. This means that, the demand level for these factors is dependent on the amount of products demanded, that these factors produce. When an economy expands, the demand for products goes up and thus the need for labourers will go up. This is because; firms will require more workers to be able to produce more products in order to meet the market demand. On the contrary, when there is an economic recession, demand for workers will decrease because demand for products is low and firms aim at lowering their cost of operation and also to reduce production. In the case of houses, if new houses’ demand in a given market declines, firms dealing in real estate business will not be willing to built new houses. As a result, the services of plasterers will be no longer needed by the firms. In such a case, the demand for plasterers becomes derived demand because it is dependent on people’s willingness to purchase new houses. Under the concept of marginal revenue productivity of labour (MRPL), firms are considered to use the marginal income product of its workers to pay for their wages. Therefore, in case a firm spends more on wages than the marginal income product gotten from the employees, it will suffer a financial loss. Similarly, if a real estate firm employs plasterers when there are no customers to buy new houses, the marginal product of the plasterers will be very low and the firm will suffer a loss[Joh06]. Figure 8 represents the labour market of plasterers. E 1 shows the number of plasterers who will be employed when there are customers to buy new houses and the firm’s marginal product will be MRPL 1. When demand for new houses goes up, the demand curve for plasterers will shift to the right to MRPL 2. At this point, the number of plasterers will increase to E 3. However, if the demand goes down, the curve will shift to the left to MRPL 3 and the number of plasterers will decline to E 2. Fig 8: Demand of labour References Mar08: , (O'Connor-Fleming & Parker, 2008), Wil11: , (Baumol & Blinder, 2011), Joh06: , (Keynes, 2006), Read More