Question 1.1.

Yes, price elasticity of demand indicates that with an alteration in price, what is the amount change
in quantity demanded, a there a significant decline in the quantity demanded because of a rise in
price or not. If there is a decrease beyond the rise in price, the demand is price elastic. And, if not,
the demand is price inelastic. The price elasticity of demand for tickets are different for each game
due to individuals from various countries around the world, all pricing the tickets inversely that have
personal preferences, that value every game differently. For example: a non-final elimination round
match has a greater elasticity due to the individual human behaviours of preference being less
interested. Contrasting, the finals and runner up games indicate a lower elasticity resulting in a
greater number of individuals that are willing to purchase a ticket at greater prices. Usually, these
individuals are from the countries who are playing, which illustrates why the prices are higher
(McHugh, 2006).

Question 1.2.

Through investigating the Japan vs. Fiji it was found that the game price is much higher than the
Wales vs. Fiji game because the games are being held in Japan, there is bound to be greater demand
for the host countries games as there will be a greater number of people willing to watch and spend
o tickets for the home country game. Thus, the price elasticity of demand is lower in the Japan vs. Fiji
game because if there was an increase in price, people would be willing to spend (McHugh, 2006).
While the price for the final game is much higher because it is for the gold and the quality of match
along with the players would be greater. Furthermore, it is the final game leading to a significantly
greater demand and people would be willing to pay the price. The organizers have not retained
identical conditions for each game because they want to price discriminate as each game would
have a different price elasticity of demand. Resulting that they increase their profits and seek a
higher share of purchaser surplus which is the disparity between what the customers are willing to
pay and the price which they end up paying.

Question 2.1.

The explicit costs are those of purchasing equipment, cost of renting the office, wages paid to
employees, materials, and equipment. The implicit cost, which isn't visible is the cost, that is
foregone in terms of salary for the existing job as there has been leave taken without pay (How
Implicit Costs Work, 2021).

Question 2.2.

The short run period will consist of one fixed input such as an ironing board for the business whereas
in the long run all inputs can be varied such as the quality of material used to repair the clothes. In
the short run the business will not produce any additions to the existing stock of capital and other
equipment. In the long run it might exit the market if there is no surplus or stay and change the
shopfront.

Question 2.3.

In the short run the business will not be able to produce any additions to the existing stock of capital
and other equipment, therefore the level of capital remains unchanged. Thus, diminishing returns
can be experienced in the case of labour, due to the level of output that remains constant, a rise in
the units of labour will lead to lower output increment as with increment in labour (Law of
Diminishing Marginal Returns, 2021). Furthermore, it creates a decline in the level of marginal
productivity and the Law of Diminishing returns comes into play.
Question 2.4.

Economic Profit = Total Revenue – (Explicit Costs + Implicit Costs) = 80,000 – (25,500 + 45,000) =
$9,500

Question 2.5.

If the business is breaking even, there is economic profits = 0, then all costs, of labour and capital
would be covered and firms would be left with no surplus. The business is indifferent between
choosing to stay in the market or opt out, and it's best not to opt out as cost of activities are
covered, therefore the business should stay in the short run. However, if it keeps breaking even,
then in the long run it might choose not to stay in the market and exits the market as there exists no
surplus.

Question 3.1.

Fixed Cost = $800, Variable Cost = $700, Total Cost = $1500, Total Revenue = $1000

Loss = $1500 - $1000 = $500

The business will be able to recover its fixed costs entirely and recover 28% of the Variable Cost. The
business loss = $500. If there is a stop in production, the loss will turn into the Fixed cost = $800.
Consequently, the most effective and efficient advice for the business is to not stop production in
the short run. In the market of perfect competition, the business will stop production only when the
total revenue p.w. is less than the fixed cost. Hence, the business will keep producing until the
revenue breaks even or is greater than $800.
Total Revenue ($1,000) > Variable Cost ($700)
and,
(Total Revenue / Quantity) > (Variable Cost / Quantity)
= > Price > Average Variable Cost
Since, P > AVC
The business will continue to produce regardless a loss.
In the short run,
Question 3.2.

Some businesses in the long run exit the market as the firm is incurring losses in the short run which
acts as a dis-incentive. In the long run, the equilibrium appears at the minimum point of the average
total cost as shown in the diagram below, as there are zero economic profits. In the long run
competitive equilibrium there are no economic profits or lossesConsequently, the business should
keep operating.

Question 4.1.

a) It is a public sector company and immense level of support from the government in comparison to
the other private organisations.

b) There is high level cost advantage that is enjoyed by Australian post in comparison to other
private organisations.

C) There are high infrastructure costs which act as barriers to entry preventing competitors entering
the market.

Question 4.2.

Argument for: There less competition and increased efficiency

in operations. Also, there is fall in the average cost in the long
run. Natural monopolies can occur where entry costs are high
and the benefit economies of scales are large, such as the
energy industry. In these cases, monopolies are beneficial as at
scale, they use resources more efficiently then could be
achieved without.

Argument against: The consumer may need to pay higher price

charged by the monopoly firm as monopolies take consumer
surplus and turn it into producer surplus. Additionally,
monopolies create a deadweight loss as a result of producing
where marginal revenue = marginal cost to maximise profits.
Question 4.3.

As the Australian Post is run by the Australian Government its goal is not profit maximization like its
competitors. Its goal is to provide an affordable postage service and can afford to run losses year
after year without being forced out of the market as it is funded by the government. Due to the large
infrastructure, maintenance and staffing costs Australia post has, the price of postage should be
much higher to break even (Marsh, 2013).

References:
Investopedia. (2021). How Implicit Costs Work.
https://www.investopedia.com/terms/i/implicitcost.asp

Investopedia. (2021). Law of Diminishing Marginal Returns.

https://www.investopedia.com/terms/l/lawofdiminishingmarginalreturn.asp

McHugh, D. (2006). A Cost-Benefit Analysis of an Olympic Games. SSRN Electronic Journal,

https://www.econstor.eu/bitstream/10419/189373/1/qed_wp_1097.pdf

Marsh, I. (2013). Setting the Post War Australian Policy Agenda - Causes and Content. Australian
Journal of Public Administration,
https://auspost.com.au/content/dam/auspost_corp/media/documents/heritage-strategy.pdf