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ECON 1901: Principles of Microeconomics

Module 5 - 7 Journal Entries

Module 5 Journal Entry #1

Mario recently opened a pizza restaurant and has one pizza oven. The data for his restaurant is in the table below. Answer the following:

1. Fill in the last column.

1. Explain how the law of diminishing returns applies to Mario's restaurant.

The law of diminishing returns states that when increments of a variable factor, like labour, are added to a fixed amount of another factor (capital or pizza ovens), the marginal product of the variable factor must eventually decline. The law of diminishing returns applies in Mario's restaurant when the number of workers increases. From workers 1-3 marginal product increases, then it dips from 3-4 workers and again from 5-6 workers. The evidence is the decreasing marginal product values.

2. Explain the result of hiring the 6th workerhow can the change in the marginal product be possible?

The marginal product becoming negative with the addition of the 6th worker could be a result of a few factors, namely, not enough space (or crowding) based on the size of Mario's Pizza Restaurant. Or it could be due to inefficiency from too many workers and not enough ovens.

Mario's Pizza Restaurant
Number of workers	Total number of pizzas produced/day (output)	Marginal product
0	0	0
1	15	15
2	35	20
3	50	15
4	60	10
5	65	15
6	60	-5

Journal Entry #2

With reference to the Globe and Mail article above and Section 8.7 in the textbook, explain the role of technological change and globalization on Indigenous businesses in Canada.

Technological change and globalization have played a significant role in increasing businesses in Canada's Indigenous communities, especially by way of e-commerce, social media, and digital marketing.Technology has allowed Indigenous businesses to reach wider markets - enabling them to promote their products and services while reducing geographical barriers/limitations. Online platforms can be used to sell traditional arts, crafts, and foods to a broader audience.

For Erin Brillon and Andy Everson, access to online resources and education platforms has allowed them to offer mentorship and training opportunities for other artists. E-commerce has also enabled Indigenous entrepreneurs to remain living in their communities, be cultural leaders and promote said things.

Globalization has enabled Indigenous entrepreneurs to take advantage of platforms like Shopify - granting access to customers around the world by providing an online store to get their products to market. As Dakota Brant says, "E-commerce has given me an opportunity to pursue the things I'm passionate about, while being able to live in the place that I want to live and thrive in".Globalization has also facilitated partnerships with companies that may have neglected Indigenous businesses. An example would be shipping and logistics, a necessity to move the products sold on Shopify. Capacity building is a natural outcome for small indigenous businesses partnering with major corporations such as FedEx or UPS.

Once the barrier to greater access to high-speed internet, the growth of Indigenous businesses should take off with booming demand for Indigenous products.

Module 6 Journal Entry #3

With reference to "The Parable of the Seaside Inn", answer the following questions:

1. Why do some resort hotels stay open during the off-season when the bargain rates they charge do not cover their "full costs"?

Resort hotels charge lower rates during the offseason to earn revenue that can contribute toward its annual fixed costs, eliminating any shortfall from the high season. The price charged must be greater than the variable costs to do so. If achievable, this is better than shutting down during the off-season.

1. Why do some resort hotels fall into disrepair even when they can attract enough customers to stay in business?

The hotels are operating to cover their variable costs. They are not putting any more investment into the hotel because it cannot fully cover its fixed costs.

1. What will be the long-run outcome for the hotel described in part b, if too few customers are attracted during the off-season for several years?

In the long run, the fixed capital will become too old to be run, or at least to attract customers, and the hotel will be closed.

Journal Entry #4

In the pharmaceutical industry, when a firm discovers a new drug, patent law gives the firm a monopoly to produce the drug until the patent runs out (20 years in many developed countries such as Canada). When the patent expires, other firms enter the market to produce and sell a generic drug which is chemically identical to the former monopolist's brand-name drug. For instance, acetaminophen is the generic name for the name-brand pain reliever drug Tylenol.

1. With a graph, illustrate the profit-maximizing quantity and price for Tylenol prior to the expiration of the patent.

PRICE S E to D QUANTITY Q 1 Q\fPRICE MC PM AC PROFIT MR D = AR QM QUANTITY