Q1:  

b) The Elasticity of Demand

According to the law of demand, the relationship between price and quantity demanded is
inversely related. As the price increases, quantity demanded will fall (Economictimes n.d.) The
amount of change in quantity demanded will be determined by the elasticity demand of the
product. Elasticity of demand can be referred to as how sensitive the quantity demanded for a
good compared to the change in price (Hall 2021). In the Vietnamese market, taxi service is an
elastic service. Due to the high substitutability with other goods, as price changes consumers
will consume alternatives. When the price of the taxi fare rises, customers will tend to change to
other transportation methods, such as public transportation or cheaper alternatives like Grab
bike. Another determinant is that it is a luxury good rather than a necessity. A luxury good is
more related to the concept of want and preferences. As their income rises, they will use this
service more, if not there are numerous alternatives that can satisfy the demand of
transportation. According to Leurent search, the elasticity of demand for the taxi service is -1.5
indicating an elastic demand service (Leurent 2019). As the company raises their price from
24,000 to 30,000 vnd, the quantity demanded will fall from 250 to 179 trips per day. With the
scenario stated, this has supported the assumption that the taxi service is an elastic service. 
 b) The effect on the Total Revenue
Due to the Covid circumstances, the company wants to cover the increase of cost by increasing
the price. Although, this strategy is ineffective in this situation. With an elastic service, an
increase in price will cause a higher fall in quantity demanded which leads to a fall of total
revenue. At the price of 24,000 vnd, the quantity demanded is 250 trips per day, the company’s
total revenue is 6,000,000 vnd. The increase of price to 30,000 leads to a fall of quantity
demanded to 179, also decreased the total revenue to 5,370,000 vnd. To increase revenue to
achieve their goal, a more ideal strategy that can be conducted is to decrease the price rather
than increase. This will lead to an increase in revenue that can allow them to cover their cost.

Q2:
a) The law of Diminishing Return
By satisfying the curiosity of how the law of diminishing marginal return applies in the services in
the university, the service provider that will be used as an example is a food store in the
Canteen Area providing baked goods. Every firm will have different variable inputs and fixed
input relatively to its production (Lumenlearning n.d.). From figure 2, the fixed inputs include the
machinery and equipment that the employee will use in the making of the breads. As in the
short run production, labor will be assumed as a variable input along with the ingredients to
produce the bread.

By using the hypothetical numbers in figure 3, the law of diminishing marginal return can be
identified. As labor increases from 0 to 5, the marginal product also increases sharply from 0 to
89. The reason for this occurrence is due to the specialization effect. When adding another
employee to the production, each employee will specialize in a field that they can perform the
best. As there are more employees, each of them will oversee a procedure which increases
productivity that causes a rise in MP. As labor increases with a fixed capital, marginal products
tend to fall. This is when the congestion effect kicks in with a specialization affect. The result is
that the kitchen will be overcrowded, which will decrease productivity and become less efficient.
Therefore, the law of diminishing return can be seen, as adding more variable input to the same
amount of a fixed input will result in a decline of marginal product (Riley 2010). 

 
b) The relationship between MC and MP
The law of diminishing returns is responsible for the link between marginal cost and marginal
product. Marginal cost and marginal product have an inverse relationship related to each other.
As more inputs are added to production, MC will fall, and MP will increase to a point there will
be an inverse change. (Turner n.d.). Due to having the inverse relationship, the maximum point
of the marginal product will be the lowest point of the marginal cost, vice versa. From figure 3, at
the labor input of 5, it can see that MP records at its peak and MC is at its trough. In response to
the student’s concern, the marginal costs of the additional service unit service will affect the
business. Therefore, to maximize efficiency, the ideal strategy is to choose the point of labor
input where marginal product is at the highest and marginal cost at the lowest.

Q3:
a) Economic of scale
When making decisions about reducing cost of production by a firm, scale and scope
economies play an essential role in determination. Concept of scale economies refers to the
cost advantage firms experience when production is efficient, as costs can be spread out a
great amount of good (Kenton 2021). While economies of scope indicate that the unit cost of
production will decline as the variety of products increase (Shopify n.d.). These concepts are
highly important in the agricultural sector, as there is a relation to the scale of crop specialization
and the degree of crop diversification. Crop diversification has been considered as an effective
strategy for sustainable growth and development in the developing world. Benefits it can bring
such as increasing farmers income and a tool to reduce the impact of natural occurrences.
Although, the literature has stated that landholders have a belief that specific-crop types farming
are more productive than doing multiple crops farming. Therefore, economies of scale can be
applied to this farming type. The first reason for the economies of scale reviewed in the
literature is due to policy interventions. In Asian countries, rice specialization has been
supported by the government by land use policies and provision of subsidies. Besides that, the
benefits of specialization also play a crucial role in explaining the puzzle of rice specialization
and the low amount of crop diversification of small farms in Asia.

b) Regions’ degree of scale economies

Based on the empirical data from table 4, households that are operating at a larger scale can
exhibit a higher degree of the product's special scale economies. Which open opportunities to
expand individual crop scales to improve the efficiency of production. From figure 4, farming
households in delta districts have a higher degree of scale economies in rice production.
Differently, in the case of vegetable and other annual crop production, farming households in
coastal districts have a higher degree than the other regions. To have the highest economy of
scale, each product should be produced in the region that has the highest degree of scale
economies.
Q4: Perfect Competition
The term perfect competition refers to a market structure that is opposite of a monopolistic
market. In this market, barriers to entry are low, therefore firms can enter or exit the market at a
very low cost. With a high number of firms competing with homogenous products, firms will have
minimal impact on the price (Hayes 2021). Due to the pressure from competitive firms forces,
this leads to firms to accept an equilibrium price in the market (Opentextbc n.d.). The prices in
the market are determined solely by the supply and demand rather than individual firms.
Perfectly competitive enterprises are very minor players in the overall market, the of raise or
decrease output will not influence the quantity supplied or price in the market. In this case, firms
are price takers as they have limited influence on the price of the product (Economictimes n.d.).
If the firm in a perfectly competitive market tends to raise their price, it will lose its competitive
advantage and market share. As, consumers can easily substitute the product from one firm to
another. In the real-life market, agricultural products come close to being perfectly competitive.
In the agriculture industry, there are low barriers to entry where firms can enter or exit without
challenges. There are no strict laws and regulations for firm to start the business. Equipment
and resources can be access with capital. Take the case of the change of crop happened in the
upper Midwest region of United States, this area is used to be called the “King Wheat. Due to a
higher gain of corn, farmers tend to switch from wheat to corn without barricades. Farmers tend
to grow the same crops which are largely interchangeable. As the market is highly competitive,
the farmers need to sell at the equilibrium price to remain in the market. From the United States
Department of Agriculture report, the average market price for corn bushel is $6.00. If farmers
decide to sell at a price of $7.00 per bushel, they will lose their sales and competitive advantage
to their competitors.

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