Question 3

(a).

Peter started a lawn mowing business a few years ago in Bega.Peter chose this business because it did not need a large investment of funds (capital) to start with compared to the other business that he had considered.He has been doing well, making a maximum profit of $25 an hour. However,there has been a large number of new entrants into the lawn mowing business,a result of the large number of job losses due to Covid-19.At the same time, demand for lawn moving has declined, leading to a decline in price per hour of lawn mowing.As a result, Peter's profit per hour has been falling and he has now needs to make a decision as to whether to stay in lawn moving business (at this point he is covering his variable cost (VC) only).Identify the type of market structure that Peter operates in and explain using a diagram, the positive profits he made initially, and the current situation that he now finds himself in.

(b).

The "Glory Taste" is the one and only Coffee shop operating at the university during the winter season.The Uni is 5 kms aways from any othercafe or food shop.What type of market does this particular coffee shop operate in?What should be the profit maximising condition of "Glory Taste".Would this condition be different to that ofPeter's profit maximising condition of his lawn mowing business under (a) above? Explain using diagrams of the two profit maximising conditions in the two market types.

Question 4

(a).

Briefly explain why public park facilities are provided by the government and not by the private sector.

(b).

A new report revealed that a factory near the town pollutes the environment. The government imposed a condition on this factory under the 'environment law' applicable to the town. It cost several millions for the owners of the factory to fix the pollution issue. However, the factory management was able to pass the majority of this cost on to the consumers through an increase in the unit price of the product that they produce. Using a graph, explain briefly whether this end result has been a socially efficient outcome.