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MICROECONOMIC - Essay Example

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MAE101 – Economic Principles Assignment: Base Version Insert name (s) Course MAE101 – Economic Principles Assignment Base Version Question 1: Choices at the margin a) Given that a parking fine brings in revenue of $75, and that on average Deakin Parking inspectors issue 0.7 fines an hour when conducting random checks, what is the expected return for an hour’s work inspecting cars for permits?…
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MICROECONOMIC
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Download file to see previous pages What is the marginal cost and marginal benefit of another hour’s ticket inspecting? ? PAY/?HOURS=0. However, the marginal benefit for the first hour is high, while the marginal cost is low. In the second hour, the marginal benefit is high but lower than the marginal benefit obtained in the first hour (Heijdra and Ploeg, 2002, p.124). On the other hand, the marginal cost for the second hour is higher than the marginal cost of the first hour. This trend continues as the number of hours progresses. Thus, parking inspectors can only increase or decrease the number of checks depending on their levels of satisfactions. c) What would happen to Deakin’s revenue from parking (income from permits and fines) and to Deakin’s costs of enforcing parking restrictions if the likelihood of being fined if you don’t have a permit is 100%? What about if it is 0%? The revenues of the company are likely to increase if a fine for lack of permits is 100%. However, people may become vigilant and decide to obtain the permits. In such a case, the revenues would only depend on individuals found without permits. The costs would still remain the same since the company would have finances for its operations. In case the fine for not having permits is 0%, the revenues of the company would decline. It would depend on other revenue streams. Additionally, costs for offering parking services would use up the finances of the company. d) Minimizing the costs of parking Daily fees =$ 6 Total number of days =96. Total cost of parking for the student = cost of daily fees x number of days attended =6 x96= $596. The student is better off not buying daily permits because it will cost higher than the inclusive triple Tri-semester parking fee which is =$125. On the other hand, the student will be better of buying the yearly permit which costs $250. This is because in a year, Tri-semester fees will cost 125 x3= 375. Question 2: Prices and revenue a) Draw demand and supply diagrams to illustrate these two different markets. Make sure you label your diagrams, their axes and all relevant points. Price/charge supply curve y P2 P1 x Original dd curve 0 A2 A1 Number of car park permits According to the advice by the economists, reducing the number of permits from A1 to A2 would result in to more revenues. At A1 number of permits, the revenues that Deakin collects is represented by area A1 0 P1 X. When the number of permits is reduced to the level A2, t he price/charge increases from P1 to P2. The revenue collected after the change in number of permits is represented by A2 0 P2 Y. The economists estimates that the area A2 0 P2 Y will be larger than A1 0 P1 X. If it is larger, then the Deakin’s can increase revenues by reducing the number of permits. In other words, incase the recommendations by the economists is implemented, the quantity of permits will reduce, the prices charged will increase and the revenues will increase. b) Why does restricting the number of permits increase revenue for Deakin, but reduce it for the council? Explain what factors might bring about the different results in the two markets. According to the advice given to the local council, reduction in the number of permits will result in to reduction of revenues. This means that, if the council reduces the number of per ...Download file to see next pagesRead More
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