P2. Profit Maximisation
Supplementary Learning Materials - Videos, podcasts, ans schemes etc.
Drawing the Price Setter Graph
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A suggested Sequence of steps for you to draw the Price Setter graph. |
Shifting the AR curve |
Shifting Cost Curves |
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The 2 videos on the left are related to a real world example of a firm, Laksania. Read about its struggle(s) that it has faced and examine the following scenarios
Scenario 1: Laksania Jem outlet was forced to close for 2 weeks after its ceiling collapse. How do you think this has affected their profits (assume initial supernormal profits) further in 2013? Scenario 2: Escalating cost such as wages and utility bills have also put a toil on Laksania. How would the above situation affect its profits? |
Shut-Down conditions
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Answers to tutorial questions
profit_max_bee_questions.pdf |
the_global_aircraft_manufacturing_industry_ans_scheme.pdf |
Essay Question 2: 2003 A-Levels Q2
In 2001 there was a world-wide reduction in airline business. Smaller airlines with lower costs and cheaper discount fares suffered less than the high-cost larger airlines such as Air France, Swissair and Lufthansa.
(a) Explain why, according to economic analysis, there are benefits from large scale organisations. [12]
(b) Discuss to what extent the above extract concerning costs disproves that economic analysis. [13]
In 2001 there was a world-wide reduction in airline business. Smaller airlines with lower costs and cheaper discount fares suffered less than the high-cost larger airlines such as Air France, Swissair and Lufthansa.
(a) Explain why, according to economic analysis, there are benefits from large scale organisations. [12]
(b) Discuss to what extent the above extract concerning costs disproves that economic analysis. [13]
Q2b) is a difficult question, so watch the video in conjunction with the answer scheme below to understand what is going on. This is a SUPERB question to showcase how A level question phrasing can be a bit convoluted. But you must remain calm and dissect/paraphrase the question properly. Do post your questions in the forum here.
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Have you achieved the following Learning Objectives?
Concepts and Tools of analysis
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Learning ObjectivesAn understanding of profit as the difference between total revenue and total cost is required.
An understanding that producers make price and output decisions based on the marginalist principle, maximising profits when marginal revenue equals marginal cost and where marginal cost is rising, is expected. These output decisions include what conditions to compel the firm to shut-down in the short run vs to shut-down only in the long run. It is important to highlight that in the real world, firms may lack sufficient or accurate information to set prices at the profit-maximising level. For example, marginal revenue may be difficult to compute, given the difficulty in estimating the quantity demanded. (Explained in Part 5 of your notes) Understanding and able to apply the short run and long run shut-down conditions to various scenarios. |