Business Economic

Individual Assignment

British University College

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Submitted to: U Kyaw Myo Min

Submitted by: La Pyae (ID-1491)

Class: HD Business (Class E)

Submission Date: 29.2.2024

Word Count: 2602

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Table of Contents
Executive Summary.....................................................................................................................................3
Introduction.................................................................................................................................................4
Question 1...................................................................................................................................................4
(a)............................................................................................................................................................4
(b)............................................................................................................................................................4
(c)............................................................................................................................................................5
Question 2...................................................................................................................................................5
(a)............................................................................................................................................................5
(b)............................................................................................................................................................6
Question 3...................................................................................................................................................7
(a)............................................................................................................................................................8
(b)............................................................................................................................................................9
(c)..........................................................................................................................................................10
Question 4.................................................................................................................................................10
Question 5.................................................................................................................................................11
Conclusion.................................................................................................................................................12

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Executive Summary
This assignment includes theories, concepts, decisions, explanations and calculations that are
related with business economic. First, there is an introduction about business economic and its
importance. Then, there are some calculations of average fixed costs and average variable costs
for production of posters and an explanation for Kevin’s shutting down of production. Next,
consequences of decreasing and increasing of interest rates by Central Bank are described. After
that, the output level that the company will generate in the short run is determined by calculating
each output unit's marginal costs and revenues for the provided table. There is also a description
of the long-term effects on profit, price, and demand. Moreover, there is a rationale supporting
the fact that a perfectly competitive firm will not set its prices above or below what the market
will allow. Furthermore, it is discussed why real GDP per capita is not a reliable indicator of
living standards as much as the HDI. Finally, there is a conclusion of the assignment.

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Introduction
Business economics studies how businesses operate within the framework of the economy. By
using the qualities and importance of financial analysis, it aids in the understanding of business
difficulties. The nature and significance of business economics are rooted in the forecasting of
and analysis, cost and production analysis, pricing decisions, profit management, and wealth
governance are the pertinent aspects related to this field (WallStreetMojo, 2024).

Question 1 TFC (Total Fixed Cost)

(a) AFC (Average Fixed Cost) =
Q (Quantity)

€250
(i) AFC per poster when Kevin produces 1000 posters = = €0.25
1000

€250
(ii) AFC per poster when Kevin produces 2000 posters = = €0.125
2000

€250
(iii) AFC per poster when Kevin produces 10000 posters = = €0.025
10000

TFC (Total Fixed Cost) + TVC (Total Variable Cost)

(b) ATC (Average Total Cost) =
Quantity (Q)

(i) TVC (Total Variable Cost) for 1000 posters = €1000

€250+€1000
ATC per poster when Kevin produces 1000 posters = = €1.25
1000

(ii) TVC (Total Variable Cost) for 2000 posters = €1800

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 €250+€1800
ATC per poster when Kevin produces 2000 posters = =€1.025
2000

(iii) Variable Cost for each additional thousand posters = €750

So, 750 x 8 thousand posters = €6000

TVC (Total Variable Cost) for 10000 posters = €1800+€6000 = €7800

€250+€7800
ATC per poster when Kevin produces 10000 posters = = €0.805
10000

(c)

The price of a product and its average variable cost determine whether a business should shut
down. If the market price falls under a firm's average variable cost, it would be better to suspend
production in order to reduce losses (StudySmarter, 2024).

Therefore, if the market price fell to €0.70 per poster, Kevin would not continue to manufacture
at any output level. He would stop manufacturing right away because the average variable cost of
making posters is never less than €0.78. If Kevin sells €0.70 per poster, he will lose money.

Question 2
Interest rate is additional money that a lender charges a borrower on top of the original amount
or the extra money that a depositor receives in exchange for making a deposit in a bank or other
financial institution. Central Bank manage the money supply by influencing interest rates.
Central Bank can use certain tools to influence interest rates to target levels. Interest rate changes
can have a significant impact on all kinds of financial decisions like saving, investing, and
borrowing. Therefore, the dynamics of interest rates are vital information for both individuals
and businesses because both the decrease and increase in interest rates have different
consequences, respectively (Alafif, 2023).

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(a) Decreasing the interest rates

When the nation encounters the periods of economic weakness, the Central Bank uses its
authority to lower the interest rate in an effort to lower the cost of borrowing for member banks.
Therefore, member banks can lend money to their clients by charging lower interest rates on
loans. As a consequence, people tend to borrow more from the banks and make more purchases
which lead to increasing of the demands for goods. Besides, a decrease in interest rates makes
individuals use more credit cards, allowing increased consumer spending. There is also an
increase in business investment when interest rates are low. As a result, the nation’s economy
becomes stronger. Therefore, it can be said that decreasing the interest rates can lead to
economic growth (Alafif, 2023).

(b) Increasing the interest rates

If the economy is growing at an intensity that could lead to hyperinflation, the Central Bank
would increase interest rates. The Central Bank raises interest rates by conducting operations of
open-market in the government's bond market. Commercial banks and the Central Bank enter
into a repo repurchase deal when the commercial banks require capital. With the understanding
that they will buy back the bonds at a fixed time and price, the commercial banks sell the bonds
to the Central Bank. The bonds must be repurchased by the commercial banks at a price which is
greater than what they were sold for. The price for repurchasing is increased when the Central
Bank decides to raise interest rates. Therefore, in response to this increased rate, commercial
banks will raise the interest rates on lending. As a consequence, people will borrow less from
banks. Purchasing goods will also fall, and the demand for goods will decrease. Moreover, the
use of credit cards and business investment will become low because of increased interest rates.
Therefore, increasing interest rates can slow down economic growth (Alafif, 2023).

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 Question 3

Output TC (€) MC (€) QD Price (€) TR (€) MR (€) Profit (€)

(Q) (TR-TC)
0 25 0 0 60 0 0 0-25=-25
1 40 15 1 55 55*1=55 55 55-14=15

2 45 5 2 50 50*2=100 45 100-45=55

3 55 10 3 45 45*3=135 35 135-55=80

4 70 15 4 40 40*4=160 25 160-70=90

5 90 20 5 35 35*5=175 15 175-90=85

6 115 25 6 30 30*6=180 5 180-115=65

7 145 30 7 25 25*7=175 -5 175-145=30

8 180 35 8 20 20*8=160 -15 160-180= -20

9 220 40 9 15 15*9=135 -25 135-220= -85

10 265 45 10 10 10*10=100 -35 100-265= -165

(a) For Marginal Cost (MC) of each unit of output;

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 Change in Total Cost
Marginal Cost (MC) =
Change in Quantity

Output (Q) Total Cost (TC) Calculation Marginal Cost (MC)

(€) (€)
0 25 - -
1 40 (40-25)  (1-0) 15
2 45 (45-40)  (2-1) 5
3 55 (55-45)  (3-2) 10
4 70 (70-55)  (4-3) 15
5 90 (90-70)  (5-4) 20
6 115 (115-90)  (6-5) 25
7 145 (145-115)  (7-6) 30
8 180 (180-145)  (8-7) 35
9 220 (220-180)  (9-8) 40
10 265 (265-220)  (10-9) 45

For Marginal Revenue of each unit of output;

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 Change in Total Revenue
Marginal Revenue (MR) =
Change in Quantity

Output (Q) Price (€) Total Revenue Calculation Marginal

(TR) (€) Revenue (MR)
TR = Price * Q (€)
0 60 60 * 0 = 0 - -
1 55 55 * 1 = 55 (55-0)  (1-0) 55
2 50 50 * 2 = 100 (100-55)  (2-1) 45
3 45 45 * 3 = 135 (135-100)  (3-2) 35
4 40 40 * 4 = 160 (160-135)  (4-3) 25
5 35 35 * 5 = 175 (175-160)  (5-4) 15
6 30 30 * 6 = 180 (180-175)  (6-5) 5
7 25 25 * 7 = 175 (175-180)  (7-6) -5
8 20 20 * 8 = 160 (160-175)  (8-7) -15
9 15 15 * 9 = 135 (135-160)  (9-8) -25
10 10 10 * 10 = 100 (100-135)  (10-9) -35

(b)

In the short run, any one of the production’s elements is fixed. The firms may adjust the level of
other elements which are needed for production in order to achieve a higher output. Therefore,
the firms must use the marginal decision rule to produce the goods for achieving the highest
short-term earnings (BYJU'S, 2024).

Thus, in order to maximize profits in the short run, the company must generate at the level of
output in which its marginal cost equals its marginal revenue. If marginal revenue exceeds
marginal cost, the extra earnings from selling one more unit will be more than the additional
expenses for producing it. So, the firm will be able to increase its profits by improving its output.

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On the other hand, if marginal revenue is lower than marginal cost, the firm will lose money
whenever it produces one additional unit. Thus, the firm needs to reduce its output in such
conditions. Therefore, the firm maximizes its profits when it selects the output level at which
MR=MC. According to the above table, this happens at Q=4 while marginal cost is 15 and
marginal revenue is 25. Despite the fact that marginal cost and marginal revenue are not quite
equal, it is the point at which the difference between them is the smallest. Total profit is the
separation of Total Cost (TC) from Total Revenue (TR). At Q is 4, TC is €70 and TR is €160.
Thus, the total profit is €90 and it represents the firm's maximal earning potential.

(c)

In contrast to the short run, in which a minimum of one input is fixed, the inputs used for
manufacturing become flexible in the long run. Besides, in the long run, a firm has the flexibility
to alter its inputs and costs throughout time whereas in the short run, the firms can influence just
the prices by modifying their manufacturing volumes. Moreover, demand elasticity tends to be
more elastic over the long run compared to short run. This is because, in the long run, there will
be enough time for consumers to find alternatives when prices change.

Furthermore, demand is fully elastic in a perfect market. And, marginal revenue which is crucial
for determining the quantity provided is represented by the demand curve. Thus, regardless of
how much the suppliers produce, the price will remain the same.

Moreover, since the firm is in monopolistic competition, the existence of economic profits will
attract new companies to the market in the long run. As every firm manufactures an alternative
product, demand is diverted from existing companies. This may result in lower marginal revenue
and demand, which could eventually break down all economic profits. The demand curve will
move to the left and the firms will make zero or normal economic where P=ATC (ACADEMY,
2016).

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Question 4
A market with perfect competition has a large number of customers and sellers. Each company in
the sector sells the same kind of goods. It is also simple to enter into and exist from the market.
Thus, there are plenty of possible entrants. Additionally, both sellers and purchasers are well
informed and hence, they can make decisions regarding the goods being purchased and sold.
Moreover, a minor percentage of the market's overall output is produced by the single company
(Golod, 2023).
In a market with perfect competition, an individual firm is a price taker. The price that the
company charges is beyond its control. This is due to the pressure from competing companies to
accept the present price equilibrium set by the market. Hence, in a perfectly competitive market,
a firm that raises its product’s price will see a decline in customer demand. All of its sales will be
taken over by rivals because there are many close substitutes to choose.

Moreover, since buyers have perfect information about product characteristics and pricing, they
are aware of the current market price. Customers will only pay the prevailing market price.
Therefore, if a firm tries to increase the price, they will purchase the same product from other
firms that are charging the normal price. Furthermore, since a company’s output is very small in
comparison to the market as a whole, its production decisions have very little effect on the
market’s supply and demand. As a result, the firm has to modify its output in accordance with
the market-determined price.

Conversely, a company that is operating in a market of perfectly competitive would never

provide products at a lower price than what the market will bear. Agricultural market is an
example of a perfectly competitive market. For example, growers of wheat must use the
computer or radio if they want to find out the current wheat price. The price of wheat on the
market is determined by supply and demand across the market. Just an individual farmer does
not determine the market price (Academy, 2024).

To sum up, a perfectly competitive firm cannot set the prices which are higher or lower than the
prices that are set by the market. The firm's actions are controlled by market forces, ensuring that
it operates at the market determined price in order to maintain its competitiveness.

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Question 5
A statistical technique for evaluating a country's overall progress in its social and economic
categories is called Human Development Index (HDI) (Chaubey, 2011). In 1990, the Pakistani
economist Mahbub ul Haq established HDI. The United Nations Development Program (UNDP)
further used it to evaluate the nation's level of development. There are three indices in the HDI
framework. They are life expectancy index, education index and income index. The life
expectancy index is measured by the anticipated lifespan from the moment of birth. The
education index is measured by the mean and predicted academic years of study. The income
index is determined by the Gross National Income (GNI) per capita (Times, 2024).
Real GDP per capita is a measure of the entire economic output of a nation per person, and it is
adjusted for inflation. It is employed to compare living standards between nations and over time.
This economic indicator involves the following three concepts. The first concept is ‘gross
domestic product’ that determines the total annual output of a nation. The second is ‘real
GDP’ that is not adjusted for changes in prices. The third one is ‘per capita’ which means ‘per
person’. The real GDP per capita of a country is calculated by dividing its GDP by its total
population (Amadeo, 2020).

Therefore, it can be clearly seen that HDI takes into account several aspects of well-being, such
as health, education, and standard of life while real GDP per capita only takes economic output
into account. Thus, HDI offers a more complete picture of human development through the
inclusion of variable factors like income, education, and life expectancy.

It cannot be said that everyone in a society is enjoying a good quality of life because of a high
GDP per capita. While a society may be considered wealthy and developed due to a high GDP
per capita, its overall well-being remains low if the health status of its members is subpar.

So, it can be said that HDI is perfect for measuring a good quality of life because its life
expectancy index generally indicates the health status and education index describes literacy
rates. A person's quality of life is directly impacted by these two non-economic indicators.

Hence, because of its inclusiveness and multidimensional methodology, HDI is a more accurate
measure of a high quality of life than real GDP per capita.

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Conclusion
In conclusion, business economics is crucial in the practice of businesses. By understanding
business economic, it is possible to understand market supply and demand, calculation of
revenues and different costs, the nature of short run and long run, characteristics of perfect
competition, influences of interest rates on market supply and demand and uses of HDI and
GDP.

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References
Academy, K., 2024. Perfect competition and why it matters. [Online]
Available at: https://www.khanacademy.org/economics-finance-domain/microeconomics/perfect-
competition-topic/perfect-competition/a/perfect-competition-and-why-it-matters-cnx#:~:text=Perfect
%20competition%20occurs%20when%20there,and%20sellers%20are%20price%20takers.
[Accessed 28 February 2024].

ACADEMY, T., 2016. Business Economic. Singapore: TMC ACADEMY - SCHOOL OF BUSINESS AND LAW.

Alafif, H. A., 2023. Interest Rate and Some of Its Applications. Journal of Applied Mathematics and
Physics, 11(06).

Amadeo, K., 2020. The Balance. [Online]

Available at: https://www.thebalancemoney.com/real-gdp-per-capita-how-to-calculate-data-since-
1946-3306028#:~:text=Real%20GDP%20per%20capita%20is,between%20countries%20and%20over
%20time.
[Accessed 28 February 2024].

BYJU'S, 2024. What is the Short Run and the Long Run?. [Online]
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[Accessed 28 February 2024].

Chaubey, P. K., 2011. Human development index: revisiting well-being transform of income component.
New Delhi: Indian Institute of Public Administration.

Golod, I., 2023. PERFECTLY COMPETITIVE MARKET: a pinnacle in the development of the laws of classical
economics. 1st Edition ed. Newcastle upon Tyne: CAMBRIDGE SCHOLARS PUBLIS.

StudySmarter, 2024. Short Run Shutdown Point in Perfect Competition. [Online]

Available at: https://www.studysmarter.co.uk/explanations/microeconomics/perfect-competition/
shutdown-point-in-perfect-competition/
[Accessed 28 February 2024].

Times, T. E., 2024. What is 'Human Development Index'. [Online]

Available at: https://economictimes.indiatimes.com/definition/human-development-index
[Accessed 28 February 2024].

WallStreetMojo, 2024. What is Business Economics?. [Online]

Available at: https://www.wallstreetmojo.com/business-economics/#:~:text=The%20nature%20and
%20importance%20of%20business%20economics%20lie%20in%20the,profit%20management%2C
%20and%20wealth%20governance.
[Accessed 29 February 2024].

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