Macroeconomics

Please rewrite the answers.

Answer the following “Application Questions” from your Farnham text.

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Chapter 1, Application Problem 2.
Chapter 2, Application Problem 5.

Application Question 2

A. The case for the Cornmarket is an example of a purely competitive market. The product corn is unanimous, and there are many producers in the market. Nearly all the USA consumes corn; hence, there are a large number of buyers. The suppliers and buyers are price takers, which is why it changes to the forces of demand and supply. The low barriers to market entry are the reason producers can easily change markets.

B. The case of the three chains Staples Inc, Office Depot Inc, and OfficeMax Inc are examples of monopolistic competition. The three are operating in a competitive market, selling a similar product that is differentiated. The firms are differentiating their products and closing physical presence to focus on the online platform. In this market, the differentiation of the product is focused on the online platform.

C. the T-Mobile market is an illustration of an oligopolistic market. Suppliers dominate this market because the merger between the two will make the company the fourth largest. Growth in this market is not only influenced by forces of the market but also by strategic decisions. The actions of other firms influence the decisions of T mobile. The companies in an oligopolistic market are influenced by the actions of other firms in the market.

D. The case for the Chinese cooking market has the characteristics of a monopoly. There are barriers to entry because of the large capital needed to buy the large heating stove. Besides, there is a need to have specialized chefs who will be paid well. The firm that ventures in this market has significant market power and can influence market prices.

Application Question 5

A. the challenging business environment is caused by changes in the demand and supply in the market. The increase in chicken consumption will cause a shift in the demand curve to the right, hence increasing the equilibrium price. The spot market prices will cause a movement along the supplier curve, which will reduce the equilibrium market price. The producer actions of cutting production decreasing egg set will shift the supply curve inwards, reducing the equilibrium price. Corn has multiple uses, and the supply to chicken production is based on the chicken market’s ability to offer reasonable prices. The effect of the changes in supply and demand depends on the elasticity of demand and supply. Production cutbacks increase the market price if the demand is elastic.

B. The increased demand for Soybeans shifted the demand curve to the right hence increasing prices. In the chicken market, Soybean is a raw material that increased the cost of production for chicken. Since producers of chicken make profits when marginal costs equal marginal revenue, this increases in cost due to soybean prices increases marginal costs. In response, chicken producers could have responded by increasing prices to increase marginal revenue or cutting production until marginal costs equal marginal revenue. However, due to the elasticity in the chicken market, increasing prices could weaken the demand further. The firms had no option but to cut production until the marginal cost and marginal revenue match. Fortunately, the increase in demand due to changing seasons shifted the demand curve and increased the price. Changes in the supply and demand of the corn and soybean markets are likely to change the chicken market’s equilibrium prices because they are essential raw materials. For more information on Macroeconomics check on this: https://en.wikipedia.org/wiki/Macroeconomics

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