Micro economics task part 1 and 2.
PARTI A.Define your business broadly: Your product: B. Your activity (producing, distributing, promoting, etc): Note: Perfect competition is not very frequent, and it is typical in commodities markets. You can focus on the production of a commodity (metals, agriculture, energy...) if you like to be realistic. In this case, you can select your product among the list of commodities available here: https://markets.businessinsider.com/commodities. But defining the production function of these products is quite complicated. For our purpose, you can also select a non-commodity product and then, make the assumption that you are operating in perfect competition. 2. Identify your inputs in broad terms (only the most relevant inputs in each of the following categories): Fixed inputs: Variable inputs: 3. Define your production function. Your production function establishes a relationship between factors of production and output (units of product). You can define it considering the production per hour, or per day, or per month. Make sure that your production function complies with the principle of diminishing marginal productivity (decreasing MP of labour). Try to be realistic. Use an excel file and fill in at least 10 lines. Table of production Function: Produced in excel example: Q of labour (no of Q of product MP of labour workers or n' of hours) (units) 4. Add costs (same excel file): Fill in table 2 considering realistic prices (or costs) for your inputs and following these steps: . The first two columns of table 2 are the same as the first two columns of table 1. These two columns are your starting point for table 2. . Compute Variable cost (VC) = Labour cost + rest of variable inputs' cost - Labour cost = no of hours worked x wage per hour (or days, or weeks, or months) Rest of variable inputs' cost = Units of inputs x price per unit. VC = (n' of hours worked x wage per hour) + rest of variable input's cost (rough total value) . Fixed Cost (FC) = fixed inputs' cost (calculate a rough total value) . Total Cost (TC) = VC + FC . Finally, fill in the rest of columns for each production levelCost Structure Table in Excel example: Make sure that MC is increasing. Find out your output levels at which MC = ATC and MC = AVC (or apr0x.) PART 11 Now, consider the following assumption: your product is homogeneous, there are enough sellers and buyers so that individual production decisions do not affect the market. There are no barriers to entry or exit, so companies can join or exit the market easily. In short: you are operating in perfect competition. 6. Represent your cost structure in a freehand graph. You need to draw the MC, ATC and AVC curves. Identify your short run & long run supply curves. T. Since you are operating in a perfectly competitive market, you are a price taker. What price range would allow you to make prot? Is it a feasible market price for your product? 8. At which market price would you break even? 9. If the market price was lower than your break-even price, would you stay in business or shut down in the short run? 10. Would you stay in business or exit in the long run? Note: if you are producing a commodity, you can check out the current price here https:f/markets.businessinsider.comfcommodities
