Managerial Economics Assignment Example | Topics and Well Written Essays - 2250 words

Managerial Economics - Assignment Example The firm would be worse off, if it produced in the short run because the total loss that the firm will incur in this case is 380 AED (120-500). It is prudent if the firm shuts down and saves 200 AED rather than losing 380 AED in the short run. At the point where the firm produces 30 units and sells each unit at 4 AED, MRC (marginal revenue cost) is less than AVC (average variable cost). Assuming that Coke has already attained the monopoly status such that Coke is a monopolist, Coke actively engages itself in price discrimination because it has price setting power (Carbaugh). Given that there is a difference in price elasticity of demand for Coke in various regions, the company varies its price and extracts consumer surplus, which leads to additional revenue and profit. Coke discriminates on price by selling its product to distributors at different prices. For instance, the price of the same can of Coke in Seattle is higher than it is in Sidney. Separately, consumers from the UK purchase Coke at a higher price, compared to consumers from other countries within the continent. When Coke is able to separate the markets, it makes profits denoted by area MC, P, X, Y + MC1, P1, X1, Y1. The price charged when Coke separates the market will be P while output Q will be produced in a relatively elastic sub-market. Coke will charge a lower price in a relatively inelastic sub-m arket (P1). When duopolists, Etisalat and Du form a cartel between themselves, the firms would want to maximize their joint profits by producing a smaller quantity and charging higher prices. The optimal total industrial output selected by Etisalat and Du would be the monopoly quantity (Agarwala). It would be agreed that Etisalat and Du contribute in production of the agreed quantity and then share the profit between them equally. Consequently, the price and output in the market will be affected in that the