HI5003 Economics For Business-competitive firm selling cabbages


Question 1

The 2019/20 Australia Bushfires affected food production nearly in New South Wales, Queensland and Victoria that are regarded as the food basket for Australia. Assume that before, the bushfire, in 2017/18  Australia produced 80,000 metric tons. Also, assuime that after the bushfire devastation in 2019/20 Australia produced 50,000 metric tons of rice. Finally, assume that during the same period 2017/18 and 2019/20 the price rice in Australia rose from AUD 1.75 per kg to AUD 3.00 per kg respectively. 

i.  Use the Demand and Supply Model above to explain the impact of the bushfires on the rice market in New South Wales. 
ii. Use the mid-point approach to calculate the price elasticity of demand for rice in Australia.        
iii. What is the price elasticity of demand for rice? Based on your answer, is rice a necessity commodity? Explain your answer. 

Question 2

Henri quit his job as a teacher earning AUD 70,000 per year to start his own food kiosk business. To save on rent, Henri utilized his own property. He normally earned AUD 50,000 annual rent from this property. Also, to start the business, Henri used AUD 60,000 from his own savings which he earned 4% interest per year. Further in order to start the business, Henri borrowed $40,000.00 from the bank and was paying 6% interest per year.   

Based on your calculations of accounting profit and economic profit, would you advise Henri to return to his teaching job or continue with the food kiosk business?   
Question 3 
Assume the extracted from Dodi company Ltd a perfectly competitive firm selling cabbages.  Assume that when the firm’s selling price is AUD 15, the marginal revenue is also AUD15. 
ii. Based on your answers to the table above, identify the profit maximizing quantiy supplied by the firm.  Calculate the amount of profit/loss at this optimal point. Show your work.  
iii.  State and examine the characteristics for a perfectly competitive firm such as Dodi Ltd selling cabbages. 

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