Calculating Opportunity Cost of Travel: Driving vs. Taking the Bus

Category: Microeconomics
Last Updated: 31 Mar 2023
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The answer can be processed by the calculations involved and that are: ARM 2000 / 10,000 km x 250 km 000/10000 x 250 = 50 50. Now according to the calculations it takes ARM 50 in total to travel from a car rather than spending ARM 100 for the bus fare to Thailand. From this point we asses that taking a bus for the trip is our Opportunity Cost, that we choose what is best and give up the alternative choice for the decision taken.

According to part B in the following question, if we include the hassle and stress of driving and an average one traffic ticket for ARM 20 and ARM 28 respectively for every 200 miles we drive our decision will still be the same and we will definitely give up he choice for taking the bus as per the calculation following: We let go the hassle of driving which adds up to ARM 20 as per the rule of Opportunity Cost and we focus on the remaining value of ARM 28 which is for the traffic ticket. The calculation is: 1 km ? 0. 62 miles, 250 km = 155 miles. So for every 200 miles we drive, ARM 28/ 200 miles x 155 miles 28/ 200 x 155 =21. = ARM 21. 7 Including the amount for the hassle of driving, ARM 21. 7 + ARM ARM 41. 7 From this we get to know that for every 200 miles we drive we have to add an extra amount of ARM 41. 7. This amount leads us to the summing up for both the answers of art A and part S: ARM 50+ ARM 41. 7 50+41. 7 91. 7. This final amount again states that taking a car is still cheaper whilst traveling by the bus giving up a fare of ARM 100. The total difference in the both values is of ARM 8. 3 stating then again that taking the car for the trip is much more economical and cheap.

QUESTION - 2 In the following situation, if a scientific report is issued stating that mercury is being found in the fish which is toxic to humans and may cause problems to health so this would definitely affect the fresh sea food market for the demand and supply. The law of demand states that "There is an inverse relationship between price and quantity demanded". There are 5 non-price factors influencing that influence demand that are I. Prices of goods related in consumption ( Complimentary and Substitute) it. Income ( Normal and Inferior) iii. Future expectations 'v.

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Taste and preferences In this situation we generally talk about Taste and preferences as when mercury found in fish is found toxic to humans, this ultimately reduces the demand for the fish and hence shifting the demand curve to the left and displaying the significant decrease in the graph. Looking at the graph attached (Pl. Turn over for the display of graph). The graph states that there is a decrease in the price of the fish as the demand decreases and also a decrease in the quantity of the fish demand, so in other forms there is a decrease from POP to Pl and also a decrease from QUO to IQ . ) In the current situation the question now states that if we see a drastic fall in the price of diesel fuel which is used to operate the fishing boats used for fishing purposes, we will also see an affect in the market for supply. The law of supply states that "There is a direct relationship that exists between the rice and quantity demanded in a given time period (sisters Paramus)" In the supply market there are basically two factors that we focus upon and they are: l. The price of resources II. Technology and productivity. Sell fuel and gasoline which is mainly used by the fishermen to operate the fishing boats in order to catch the fish falls down or decreases significantly so in this situation, according to the law of supply and demand this in turn will increase the supply of fishes being sold as more producers or fishermen will tend to fish more and thus will have a large amount of fish to sell for the people demanding it hence increasing the supply of the fish in the fresh seafood market. Looking at the graph attached (Pl. Turn over to refer to the graph).

The graph indicates that there would be an increase in the quantity from QUO to IQ and for the price it will decrease from the new price to the original price or in other forms it will increase in the same way from POP to Pl . Now looking at this question, Soya beans are often used as one of the main ingredients for the feed of cattle. The question states that, if a price support program supports the price for Soya beans used for the cattle feed this would ultimately affect he market for the supply and demand for beef.

In economics, a price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level. In the case of a price control, a price support is the minimum legal price a seller may charge, typically placed above equilibrium. It is the support of certain price levels at or above market values by the government. A price support scheme can also be an agreement set in order by the government, where the government agrees to purchase the surplus of at minimum price.

For example, if a price floor were set in place for agricultural wheat commodities, the government would be forced to purchase the resulting surplus from the wheat farmers (thereby subsidizing the farmers) and store or otherwise dispose of it. In this situation we are talking about how the price support program in this situation will affect the market equilibrium, price or quantity. Looking at how the government acts on the ingredients of cattle feed so hereby the program reduces the price of Soya bean and thus increasing the demand for Soya bean for feeding the Attlee hence increasing the supply for beef in the market for beef.

Looking at the graph for the following question we can see that there would be an increase in the quantity from QUO to IQ and on the other hand we see a decrease in the price from Pl QUESTION - 3 In the current question situation we are asked to find the average, variable, marginal and average total cost from the given terms: Average Product = 50 Marginal Product = 75 Wage Rate = 80 Fixed Input = 500 Total Variable Cost / Quantity TV/Q 80/50 = 1. 6 Marginal Cost Total Difference of Costs / Total difference of quantity 80 75 = 1. 6 Average Total Cost Average fixed Cost + Average variable cost We need to find the Average Fixed Cost first as A. P=50 so, 50=T. P/L 50=T. P/50 -r. P=sox's Hereby, A. F. C=500/XX = 0. 2 A. F. C + A. V. C 0. 2+1. 6 = 1. 8 Please turn over for the display of graph. Short-run average cost will vary in relation to the quantity produced unless fixed costs are zero and variable costs constant. A cost curve can be plotted, with cost on the y-axis and quantity on the x-axis.

A typical average cost curve will have a U-shape, because fixed costs are all incurred before any production takes place and marginal sots are typically increasing, because of diminishing marginal productivity. In this "typical" case, for low levels of production marginal costs are below average costs, so average costs are decreasing as quantity increases. An increasing marginal cost curve will intersect a U-shaped average cost curve at its minimum, after which point the average cost curve begins to slope upward.

In economics and finance, marginal cost is the change in the total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. [l] In general terms, marginal cost at each level of reduction includes any additional costs required to produce the next unit. For marginal cost of the extra vehicles includes the cost of the new factory. In practice, this analysis is segregated into short and long-run cases, so that over the longest run, all costs become marginal.

At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, whereas other costs that do not vary with production and are considered fixed. QUESTION ? 4 In microeconomics, Economies of scale are the cost advantages that enterprises obtain due to size, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost as well.

Economies of scale apply to a variety of organizational and business situations and at various levels, such as a business or manufacturing unit, plant or an entire enterprise. For example, a large manufacturing facility would be expected to have a lower cost per unit of output than a smaller facility, all other factors being equal, hill a company with many facilities should have a cost advantage over a competitor with fewer. Discomposes of scale are the forces that cause larger firms and governments to produce goods and services at increased per-unit costs.

The concept is the opposite of economies of scale. Discomposes of scale in a firm might be caused by: Control - monitoring the productivity and the quality of output from thousands of employees in big corporations is imperfect and costly. Co-operation - workers in large firms may feel a sense of alienation and subsequent loss of morale. If they do not consider themselves to be an integral part of the business, their productivity may fall leading to wastage of factor inputs and higher costs.

A fall in productivity means that workers may be less productively efficient in larger firms. Loss of control over costs - big businesses may lose control over fixed costs such as risk that very expensive capital projects involving new technology may prove ineffective and leave the business with too much under-utilized capital. For the following statement that appeared in a wall street Journal in the year of 2000 guarding the huge fixed costs involved in developing new vehicles and automobiles and in which auto makers felt compelled to maintain or expand market share.

The auto makers if lost their shares and in the coming long term could affect in the shutting down of factories, or running the factories at unprofitable rates. This statement supports the Discomposes of scale as it involves a huge amount of fixed costs for the development of new vehicles and automobiles. As mentioned above, discomposes of scale may occur if larger firms and governments produce goods and services at increased per-unit costs. Similarly the firm had been producing the icicles and automobiles at huge fixed costs which would later cause the company to shut down or either demonstrating the discomposes of scale.

The economies of scale do not benefit a company or a firm if its output level is small or it involves a huge amount of fixed costs in the LIRA. By taking advantage of the opportunities that come from larger size and increased output, companies can reduce their average unit costs, and increase their profits. They can also create many internal opportunities simply by growing. And sometimes the external environment also provides economies of scale, based on things like industry size or geographic location.

Organizations must be careful about outgrowing their economies of scale and getting too big. Average unit costs usually decrease with increased output, but only to a certain point. After that, costs may begin to rise again as the company creates unwanted inefficiencies. These 'discomposes' of scale can also result from external events, so an organization should continuously monitor its size and growth to seek its optimal level of efficiency. (2,312 Words in total) www. Investigated. Com www. Wisped. Com wry. Tutor. Com www. Schlep. Com

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