Question in a perfectly competitive market individual firms

                                                                                 

                                                                                    

 

 

Question
1

 

The market demand curve slopes downward, while
the firm’s demand curve is a horizontal line.The graph below indicates that the change in
demand of raw water will shift the demand curve to the right from (D0 to D1),The change in demand will result to an increase
in price of raw water from (P0 to P1)The increase in price of raw water from (P0 to P1)
will result to an increase in quantity supplied which reflects movement along supply
the curve from (P0, Q0) to (P1, P1)Point (A) shows the equilibrium point which will
determine the price of raw water whereas Point B indicate the new price after
the change in demand of raw water to date.This indicates that in a perfectly competitive market individual firms are price
takers and that the price is determined by the intersection of the market
supply and demand curves.

Price (R)

 

Quantity Demand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 2

 

Factors that can affect the supply curve of
raw water to shift

Climate Changes

The availability of
water mainly depends on the climate, lack of rain will result in change in
supply and move the supply curve to the left and increase due to that the
suppliers will be unable to meet the supply the quantity demanded.

Standards of living.

 

Population growth

The population in South
Africa has increased from 1994 to date, this has a major impact in supply of
raw water. The increase in population will result in increase in quantity
supplied and change in supply which cause the left shift in the demand curve because
the suppliers unable to meet the demand.

 

Input prices

The cost of extracting and cleaning raw
water has increased since from 1994, the increase in these inputs results in
high production cost as a result producing water to supply the municipalities
will become less profitable and reduce supply.

This will cause the supply curve to
shift to the left.

 

Factors that can affect the demand curve of
raw water to shift

Changes in Income.

The demand of raw water
will depend on Income of the consumers, the increase in income of will result
in increase in demand, this will cause a shift in demand curve to the right.

 

 

 

 

Change in expected
future prices

If people expect
increase in price of water, from the municipalities due to that consumer want
to buy water before prices hike, this will increase the demand of raw water and
cause the demand curve to shift to the right.

 

Population

The population in South
Africa have grown since 1994 to date, this result in increase in the change in demand
of raw water and result to shift to the right on a demand curve. Signh, J

 

 

Question 3

South Africa is a welfare developing state. A
country leading with inequalities, with the highest poverty rate and with
challenges in education, health, crime and employment.

Social grants are the one of the many tools
used to make sure that people faced with those challenges have something to
live on, this is the way our government is trying to reduce unemployment but
again we need to look at our economy and how will it be affected in the long
run.

Since these social grants are paid out of taxes
the country might find itself unable to pay these social grants due to
insufficient money received from tax payers.

 

My proposal is to build an economical enabling
Infrastructure. Economic enabling Infrastructure refers to the basic physical
systems of a country’s or community’s population, including roads, utilities,
water, sewage, etc.

Having good quality Infrastructure in South Africa
will have positive effect in economic growth meaning increase in job creation
and increase foreign direct investment to improve tax revenue. An increase in
Economic Growth will result in Increase in Gross Domestic Product of a country.

 

 

 

 

Question 4

Given
the option of either sending your child to private school or ensuring they were
on Discovery medical aid, which one would you choose, explain your reasoning.

 

I
would choose the option of ensuring that my child is on Discovery medical aid
because

to me
health is the main priority and discovery medical aid will give my child access
to private hospital care. In South Africa, we have a very poor public health
services as compared to public education.

 According to
Bloomberg Quick Take,27 July 2017

The
South African Constitution’s Bill of
Rights says that everyone has the right to have access to health
care services. Yet more than 80 percent of the nation’s population has no
medical insurance and depend on a public health system with too few doctors and
dilapidated facilities, resulting in treatment delays.

The
country’s poorest people have access to free services and medicines at about
4,200 public clinics, but these facilities have been badly managed and are
hampered by broken equipment, medicine shortages and insufficient numbers of
staff.

Business
Day newspaper found that out of the 1,427 facilities inspected in the four
years through March 2016, only 6 percent of them passed their inspections on
criteria ranging from drug availability to infection control.

 The biggest reason cited by doctors leaving
South Africa’s public sector is the poor working conditions. Medical Aid scheme
will help me to pay for my child’s health care needs.

 

Feel I still need to add more

 

 

 

 

Question 5

Examples
of Monopoly and Oligopolistic Competition

Retail Sector – Monopolistic CompetitionWater Sector-Oligopolistic CompetitionOil and gas Sector-Oligopolistic Competition

Both Monopoly and
Oligopoly are market competition models that are imperfect

meaning that they show
some characteristics of Imperfect competition. In perfect competition, there
aren’t barriers to entry and exit in the market place, there are a large, even
infinite, number of buyers and sellers, and every buyer and seller is a “price
taker,” meaning no one has the power to set prices.

A cartel is a special
case of oligopoly when competing firms in an industry collude to create
explicit, formal agreements to fix prices and production quantities. In theory,
a cartel can be formed in any industry but it is only practical in an oligopoly
where there is a small number of firms A cartel has less command over an
industry than a monopoly According to News 24 June 2017, two fire companies
(Fireco Gauteng has admitted cartel conduct.

Fireco Gauteng and
Afrion have admitted that they engaged in price fixing, market division and
collusive tendering in contravention of the Competition Act. Fireco Gauteng has
agreed to pay an administrative penalty of R909 000, while Afrion has agreed to
pay R327 000.

The
commission said its investigation found that from at least 1996 to 2015 the
companies had fixed prices, divided markets and tendered collusively when
bidding for tenders to install fire control and protection systems in new and
existing buildings.

Feel still need to add more and maybe a graph?

 

 

 

 

 

 

Question
6

 

A cartel occurs when two or more firms enter
agreements to restrict the supply or fix the price of a product in an industry.

Cartel become harmful to small and medium
sized businesses and consumers by artificially raising prices, restricting
choice or reducing product quality or service.

 

Cartels are against the public interest because
cartels aim to Increase price; Distort normal workings of a competitive market   from
consumers to powerful vested interests. Successful cartels become an ‘easy’ way
to make profit, therefore it may discourage innovation and efficiency gains.

In South Africa
cartel behaviour is prohibited by section 4(1)(b) of the Act. The penalty for
participation in a cartel is a fine of up to 10% of the firm’s annual turnover.
The firm also faces the risk of damages claims by customers who may have
suffered harm because of the cartel activity.

It found that work done by South Africa’s
competition authorities in battling cartels in the cement and food industries has
helped to reduce prices, stimulate growth, including by allowing new entrants
into some markets, and helping hundreds of thousands of South Africans ward off
deeper poverty.

Feel still need to add more

 

Question 7

C-Class continues to be the best-selling
model in Merc Benz due to its high demand and lesser in price as compared to E
Class Model. To measure production efficiency of C Class, we need to look at
how well a company is producing its Mercedes-Benz to maximize its outputs while
using the least amount of resources. The price of Mercedes Benz C Class is
cheaper than of E Class which means the unit cost of C Class will be less that
of E Class, when production cost per unit of C-Class is cheaper the company
will therefore increase its production efficiency. Variable costs will
correlate with the number of products manufactured, the more production of C
class will result in increase in Variable Cost while Fixed cost remain the same.

Total Cost =TVC +TVC

Graph?

The increase in TVC result in increase
in total output of C- Class. Mercedes leverage on the economies of scale,
because they produce more C-class on a larger scale but they must try and avoid
Diminishing return to scale. Diminishing return will be bad to business because
it will lead to decrease in output, decrease in Profit while more money will be
spending on Variable Cost.

 

 

Question 8

 

Based on your
observations in the above question, what measures would you propose South
Africa companies to take to compete in the manufacturing space with Chinese
companies who have much greater scale and a much larger domestic market.

 

China’s industrial
production rose by 6.1 percent year-on-year in November of 2017, following a
6.2 percent gain in the prior month while markets expected 6.2 percent.

This implies that
China’s economy is booming. China achieves this by being very innovative,
investing in good technology, Increase in employment and job specialization.

Also, due to good
scalability China products are cheaper than other countries.

 

 

If South Africa wants
to achieve a greater scale like China they should invest in good technology,
build more factories and increase labor specialization. This will result to an increase
in total output and lower the price of products as each worker will be doing
what he/she do best.

 

 

The graph below
illustrate better how South Africa can achieve great economy of scale.

The graph shows that
the unit cost is falling from C to C2 as output increases from Q to Q2. (still need to draw the graph and add more info)

 

 

 

Graph….