ECON1048 : Price Theory Industry Analysis - Economics Assignment Help

Assignment Task:

TASK:

Introduction

Decision-makers in government rely on the advice of experts when formulating policy or discharging their statutory responsibilities. In this assignment you will take the role of an expert economist, employed by a government department. An expert economist’s role in the government decision-making process is two-fold: • Analysis: Economists use their specialist knowledge and skills to analyse the likely outcomes of policy alternatives. They then evaluate these outcomes against the government’s objectives and statutory obligations. • Communication: Economists communicate their findings to ministers and senior public servants, who, in many instances, do not share their specialised knowledge. This assignment will assess your aptitudes in both of these domains. You are to conduct an industry analysis based on the scenario detailed in section 2. Then use your analysis as the basis for a brief (a short report) summarising your recommendations and the associated rationale.

Your task

The Minister for Finance has instructed you to determine the likely impact of the proposed merger on the market, and to recommend whether or not authorisation for the merger should be granted. Under the relevant legislation, authorisation for a merger can be granted if,

• the proposed acquisition would not be likely to substantially lessen competition OR

• the likely public benefit from the proposed acquisition outweighs the likely public detriment. Note that competition policy prevents the government from imposing any other form of market regulation, including price caps. 2.2 Industry structure Pre-mixed concrete is an important input for the construction industry.

Concrete cannot be stored or transported over long distances as it begins to set after only a few hours. For this reason, only the three local firms—Aggregate Inc., Big Industries and ConCorp—are in a position to compete in the market. Moreover, the capital and regulatory requirements for constructing a new concrete plant are substantial, creating an effective barrier to entry. Pre-mixed concrete is regarded as a homogeneous good by the construction industry. Inverse demand in the market has been estimated to be, P = 520 − Q 50, where P represents the price of a cubic metre of concrete in dollars, and Q is the total number of cubic metres of concrete supplied into the market on a given day. At present the three firms appear have identical production costs, with each firm facing fixed costs of $400,000 per day and a marginal cost of $160 per cubic metre.

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