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In this report we would be calculating some fundamentals of economics like that of Total cost and average cost of a firm. This would also be including the part of rate of excise on the tobacco products especially like that of cigarettes in Australia as their government has decided to increase the excise duty on tobacco at 12.5% each year from 2018-2020. The report would also be covering certain parts of economic rational for the merger of local and state governments in Australia.
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Explaining in detail the effect of tax imposed on sellers of tobacco.
As the tax rate or the excise duty on tobacco in Australia is been increasing by 12.5% each year from 2018-2020 so there are chances that this would be up to 69% of the total price of the pack of cigarettes. This increase is done in the month of September of each year based on the average weekly ordinary time earning (AWOTE) this was schedule in the Excise tariff act of 1921. As per the common fundamentals of economics it was seen that the price and demand of the products are having inverse relationship between them both. As the price increases demand of that products decrease and vice verse but this is not in the case of tobacco or cigarettes which consumer are consuming.
The price elasticity of demand would be regarded to as the extent to which demand of products would be decreasing or increasing if the price of that product is increased or decreased by the producer (Wright, Smith & Hellowell, 2017). If there is slight change in the price of product than this would be leading to high or change in demand of that products. But in case of tobacco and its products they are regarded not to as elastic there is very little or no change in the demand of that product if their price is rising. However, if there is high change in the price of that product than the number of people smoking would be reduced which is increase in their interest in smoking or quitting it successfully.
The increase on the excise duty would be mainly on the seller or producer who is supposed to pay the tax on direct bases but the burden of this tax would be drawn directly on the buyer or actual consumer. As they are the one who is paying the amount or price of cigarettes so the burden of tax would be laying onto them only which is paid by seller (Morgan, 2017).
So we have calculated the tax before the tax price which is $30 in this particular calculation we have assumed that
- Cigarettes would be of less than 0.8 grams so as per the rate as on 1st January 2018 which is 0.69858.
- Per cigarettes pack is having about 20 cigarettes in them.
So the excise duty on cigarettes would be around $11.17728 from the total price of $30 price before the tax is $18.82272.
(a) Calculating ATC, AFC, AVC and MC.
We have been give the Total cost and Quantity with the price of $35 of a perfectly competitive firm. As this is a perfect competition firm so the price of its products would be $35 which is constant at all level of output showing this in following diagram.
While the graph showing ATC, AFC, AVC and MC and in this perception we have made certain assumption like that of:
- The TFC is been assumed at 30 which is then giving us the TVC at each level of quantity.
It is important for a perfect competition to decide over how much to produce in both long and short term which is one of the major decision. At both the level they should be having profits which is Profits – TR-TC in this case the price of product would be determined by the market force of demand and supply so there are no such chance where they would be choosing or deciding over this price. So at same price they are able to sell many products into market just to obtain profits.
In the case of short run they would be choosing that point at which they are earning maximum level of profits from the sale of products which is P=MR=MC. This is the point of profits maximization so they must be producing at that price only at which they having maximum level of income (Freebairn, 2018). While in the case of long run firm is only having the normal profits not the high or low one. As there are no barriers to the entry into market so it could be increasing the supply of products in market shifting the supply curve towards the right and thus the firms would be tend to have only normal profits.
(b) Explaining the difference between monopolistic and oligopolistic markets with examples.
Monopoly firm is regarded to as that one that is having only one single seller in market with about number of buyers of that products while on the other hand oligopoly is that where there are only certain number or groups of sellers selling the products to number of buyer. In both case the competition within market is imperfect one due to certain or limited number of sellers and many buyers (What Are the Major Differences Between a Monopoly and an Oligopoly?, 2018). In oligopoly market all the sellers of products are forming a group which is known to as Collusion and then they are deciding the price of their product in collective bases. While the main difference between both of these markets could be defined to as:
Pricing and barriers to market entry-
In case of monopoly as there is only one particular seller within the market so he is able to charge any amount from the customer of good due to no competition available. On the other hand the price of the oligopolistic market is having a moderate effect just because they are having competition of their products in market.
Barriers of entry in very high due to technology and capital requirement is huge it is the same in case of oligopoly market but due to the economies of scale.
Collusion in oligopoly-
Monopolistic firm is having huge number of buyers but only one single seller who would be selling their products at any price. But in the oligopolistic market their price is decided by themselves only or with the help of marketing strategies. So this is called to as collusion which means rather than fighting with each other they are coming together to set the price and changing the market structures (Setiawina, 2018). Google at present is having about 67% of the control of web search in market while its other competitors are only at 18% to 11% which is Microsoft and Yahoo so company is having monopoly in the market. While on the other hand the cold drink firms like that of Coca Cola and Pepsi are having their oligopoly in the market they are forming collusion and then fixing the price of their products.
Explaining the economic rationale for the policy of merging of Local and State governments in Australia using cost curves.
Australia is having many variations into the geographic size of the local government and their populations this would be reflecting what are the diversity within the government of country. There were number of amalgamations over the past century in the Australian government this was done in order to make the local government more efficient and effective to work with. This was also a need for the modern economy with delivering better service to citizens with been able to provide them sound governance. There were also some predictions which were mad on the bases of cost saving and reduced in the cost as well. This was the common form of justification which was made in the amalgamation which was made during time of 1990.
It was marked in the city of Victoria that they would be having rise in the total saving of about 20% which was till the extent of real terms of saving and economies of scale. It was also found that in Western Australia there would be significant amount of cost saving which is also including the decrease in expenses. Thus, there was emphases on the larger units to improve the capacity and viability of the local government rather than only having the focus on cost saving. In the year 1990 when this was implemented there was projected saving of about $150 million per annum of local government expenditure but due to major modifications there was saving of only about $19 million (Amalgamations: To Merge or not to Merge?, 2018). The expenses brought about by Queensland committees as a result of the 2007-08 amalgamations were explored in 2009 by the Queensland Treasury Corporation (QTC). The audit was based on figures provided by the committees themselves. Key discoveries were as per the following:
- Costs were without a doubt considerable: the 24 boards included guaranteed an aggregate cost of $184.71 million, despite the fact that QTC's evaluation decreased this figure to $47.21 million, to a great extent by barring what it viewed as optional choices to receive the wage and compensation levels of the already most elevated paying chamber
- Additional expenses would be continuously balanced by reserve funds – yet investment funds were frequently furrowed once again into enhanced administrations instead of made express
- All the committees had the money related ability to meet the expenses of amalgamation, which spoken to just 0.3-1.5% of working incomes. QTC's discoveries seem to loan some help to the two sides of the amalgamation face off regarding.
In Western Australia, the steps to rebuild neighbourhood government in the Perth metropolitan area and generally split the quantity of boards have been dealt with by a three-advance process:
- A survey by an autonomous board
- Formulation of recommendations by the Minister
- Review and assurance of those recommendations, and choices put together by committees, under the arrangements of the Local Government Act by the autonomous Nearby Government Advisory Board.
The Minister can just acknowledge or reject the Board's suggestions – not make corrections. Essentially, almost all the Board's proposals for Perth depended on the option recommendations presented by gatherings, and there now is by all accounts with acknowledgement in neighbourhood government that a sensible procedure has been taken after.
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From the above chapter we have noticed that there are number of factors which are affecting the price of monopolist firm then also they are not considering any of them and only deciding the price on their own. It was also noticed that oligopoly market are taking decision in regarding to all suggestions only and not by their own.
- Basavachari, V. (2017). Cost and Costing Techniques in Managerial Economics.DHARANA-Bhavan's International Journal of Business,7(1), 19-27.
- Freebairn, J. (2018). Opportunities and Challenges for CGE Models in Analysing Taxation.Economic Papers: A journal of applied economics and policy,37(1), 17-29.
- Morgan, L. (2017). The Rise of Tribes and the Fall of Federal Indian Law.Ariz. St. LJ,49, 115.
- Setiawina, N. D. (2018). Analysis of Factors Affecting Furniture Production in Denpasar City (Case Study Production Process and As Export Products).Journal of Business Management and Economics,6(03), 09-32.