Analyse and compare the profit and price markup

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Reference no: EM133862220

Markets and Legal Frameworks

EPA Brief - Context and Overview

It is a ‘take-home' activity, consisting of a set of tasks to do in short-written answers

Question 1:
Consider the consumer market for beverages (such as beer) in the US, as per the following key articles:

Assume the price of beer has increased by 15%. Explain the price elasticity of demand and its impact on
revenue for: (i) younger generations (Gen Z, Millennials); and (ii) older generations (middle-aged).

In your analysis for each generation (i) + (ii), do the following:

Draw a single straight-line demand curve as either elastic or inelastic (you will have to work this out). Use hypothetical incremental values-rough guesses from your imagination-for the prices on the y- axis and quantities on the x-axis.

Show the workings of your calculation of price elasticity of demand (PED).

Describe and quantify what would happen to revenue in this case.

Explain and justify with relevant details on PED (i.e. why it is either inelastic or elastic) based on your reading of the key articles.

Question 2:

Consider automotive company BYD, founded less than 20 years ago by Chinese chemist, Wang Chuanfu. BYD is enjoying the Schumpeterian (innovation) profits over its competitors in the past few years. BYD is the world's largest electric vehicle (EV) maker, selling the most total vehicles (both full-electric and plug-in hybrid) mainly to middle-class consumers in China and beyond. Creative-destructive processes are at work, and you can read more about BYD's rise in the following key articles:

Demonstrate and explain what the profit of this firm might look like using a key economics diagram, as discussed in the economics lectures/videos and tutorials in BLAW1002 S1 2025, as per the below:

Note the following to help set up your analysis:
assume the firm sells base models of BYDs at the median profit-maximising price of $10,000.

assume the average costs of production is $2000 per car, which includes the costs of materials (e.g. components that are part of the core drive train, chassis, body, interior/exterior, etc.), labour, shipping, insurance, marketing, and other expenses/overheads.

use intuition for making up the incremental prices/costs on the y-axis, and for the incremental quantities of monthly car production on the x-axis, use hypothetical values (rough guesses from your imagination).

You will hand draw the diagram, including the one (1) isoprofit curve. Be accurate when you draw your isoprofit curve. To show to the reader that your profit is the same (‘iso'), calculate and show your workings of what the (same) iso-profit would be for the price of $15,000 and for $5000.

At the profit-maximising price, identify the areas of producer and consumer surplus, and calculate the price markup.

Analyse and compare the profit and price markup if increased competition led to BYD lowering its e- vehicle prices by 10%, ceteris paribus.
With reference to your answer in [c], elaborate on how the entrepreneur at BYD could innovate even more in the face of intense competition based on your observations from the key articles.

Reference no: EM133862220

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