Monday, 21 January 2013
ASSIGNMENT:
The Case:
Solar energy is becoming more popular with the passage of time. Due to
increasing demand of power, solar energy has become an active alternative in
the power sector. Chinese company “Suntech Power” is the largest producer of
solar products. Suppose, being the largest producer in the area, the said
company has become monopolist in the market. Higher demand of solar
products from last few years has attracted few other companies to enter into
this market, which in turn has affected market share of Suntech Power.
Further, Chinese government has imposed heavy tax on the production of solar
energy products. As a result, marginal cost of solar product was increased to
Rs.6000 million and the elasticity of demand for solar products after imposition
of tax was -4. To analyze the company’s standing in present situation and to
take production decisions, the company has called meeting of economic
advisors. The economic advisors collected the company’s data and formulated
few questions in order to analyze the given situation. On the basis of the
answer of these questions, they would be able to take the production decisions.
Data on price, quantity and total cost is given in the following table;
Price
(Million
Rupees)
Quantity
(Units)
Total Cost
(TC)
2000 100 100,000
3000 300 400,000
3500 400 900,000
3200 450 11,00,000
2800 500 13,50,000
Requirements:
Being a student of economics, you are required to answer following questions
by using the above information.
A. Calculate marginal revenue and marginal cost of Suntech power.
B. What is the maximum output that the producer of Suntech power would
ever produce?
C. Under the given situation, what would be price of solar product after the
imposition of heavy tax?
D. Should this company supply output at price calculated in part C? Give
answer with economic reasoning.
E. Suppose this company has produced 400 units. At this output level, should
this company increase production, decrease production or leave output
unchanged in order to maximize its profits?
(Marks Part A=4+4, Part B= 2, Part C=5, Part D=3, Part E=2)
The Case:
Solar energy is becoming more popular with the passage of time. Due to
increasing demand of power, solar energy has become an active alternative in
the power sector. Chinese company “Suntech Power” is the largest producer of
solar products. Suppose, being the largest producer in the area, the said
company has become monopolist in the market. Higher demand of solar
products from last few years has attracted few other companies to enter into
this market, which in turn has affected market share of Suntech Power.
Further, Chinese government has imposed heavy tax on the production of solar
energy products. As a result, marginal cost of solar product was increased to
Rs.6000 million and the elasticity of demand for solar products after imposition
of tax was -4. To analyze the company’s standing in present situation and to
take production decisions, the company has called meeting of economic
advisors. The economic advisors collected the company’s data and formulated
few questions in order to analyze the given situation. On the basis of the
answer of these questions, they would be able to take the production decisions.
Data on price, quantity and total cost is given in the following table;
Price
(Million
Rupees)
Quantity
(Units)
Total Cost
(TC)
2000 100 100,000
3000 300 400,000
3500 400 900,000
3200 450 11,00,000
2800 500 13,50,000
Requirements:
Being a student of economics, you are required to answer following questions
by using the above information.
A. Calculate marginal revenue and marginal cost of Suntech power.
B. What is the maximum output that the producer of Suntech power would
ever produce?
C. Under the given situation, what would be price of solar product after the
imposition of heavy tax?
D. Should this company supply output at price calculated in part C? Give
answer with economic reasoning.
E. Suppose this company has produced 400 units. At this output level, should
this company increase production, decrease production or leave output
unchanged in order to maximize its profits?
(Marks Part A=4+4, Part B= 2, Part C=5, Part D=3, Part E=2)
