Economic Principles: Written Assessment 5
The marginal yield of production is expected to decline with an increase in single
production factors when all other factors of production are held constant. The marginal cost
of production increases if the marginal product of a variable resource decreases because
employing extra factors of production leads to a relatively reduced increase in total output.
The extra output from every extra variable unit resource gets smaller because every extra unit
of variable resource inputs equal amount of the total production cost this implies that
additional cost is equivalent to the unit price of the resource variable.
Task 4
Question 1
Advertising can lower financial welfare because of its costly nature, manipulation of
consumerβs tastes, and impeded competition by creating products that appear more diverse
than they actually are. Example is the market for bottled water that becomes
monopolistically competitive since the end users are concerned about quality, hence every
manufacturer as different product with almost the same quality.
Advertising can increase economic welfare by offering helpful information to targeted
consumers and creating health competition. This is because adverting increases brand name
that provides companies with an incentive to carry on with high-quality to maintain the
reputation of their good name.
Question 2
Yes, it is true that Market Research and brand management are redundant. This is
because the market information provided by market research data does not always indicate
the certainty of the market condition. Although market research and data can provide
interaction with various people, it cannot assign some worth to those interactions. Market
research data may fail to indicate the real situation in the market. The data might not capture
some fluctuations in the market like in cases where a client buys an alternative product
because their preferred brand is not available.
Question 3
a) Godrickporter adopts a marketing strategy of allocating more funds to advertising,
while Start Connections are using their advertisement budget as it is. This will
increase their profit to $16,000, while their competitor is halfway at $8000. An
advertising strategy would be considered to be a dominant strategy for a player in case
it results to the best playoff for that specific player regardless of what strategies the
rival competitors select.
b) Yes, there is a dominant strategy for Star Connections; to increase their advertising
budget, while their Godrickporter leave it at the current status. Using this dominant
strategy they will dominate the market with a higher profit of $15,000 as compared to
their competitors $12,000.
c) Godrickporte, by increasing its advertisement budget, will increase its profits from
$16,000 to $6000. For Star Connections, their competitors wonβt increase their budget
hence they are unlikely increase their advertising budget.
d) Nash equilibrium is not actual strategy in this game. Nash equilibrium happens where
the strategy for each company is optimal provided the approaches of the opponent
firm do not change. It happens where there is no autonomous gainful deviation from
the involved players. Given the situation in the game, each player would like to shift
to different option in case their competitor chooses different strategy.
Question 4
a) Merging two key companies in a certain industry leads a single company that enjoys
economies of scale. This reduces the players to a big company that enjoys increased
output and can lower the average costs hence consumer prices. Economies of scale
