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Economics Assignment

Part 1

a. Labor Productivity Growth Rate

b. Production function changes

Employment dropped from 2009-2010. It gradually grew to the 2009 level in 2017. It

kept growing to highest employment level in 2018. All the production functions followed the

same pattern with growth slowing down by the middle of 2018.

c. Average Total Cost(ATC) Curve

The Average Total Cost curve during this 10-year period followed a flattened U-shaped

curve. This follows the reasoning that the productivity was lowest at the beginning of this period

while Unit labor costs were high. Based on this, the ATC should have been high in 2009. This
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was followed by growth in productivity and decline in unit labor costs of production that brought

the ATC down. Year 2013 and onwards, the productivity growth slowed down while the unit

labor costs growth kept its pace, outpacing the growth in productivity. This unit labor cost

outstripped the cost benefit of productivity growth and resulted in ATC growth during the later

years of the decade.

Part 2

a. Characteristics Observed

Agricultural markets are an example of perfectly competitive markets in real life. An

agricultural market has many producers with homogenous products, like rice or wheat, selling at

zero economic profits with MC=p. The market has perfect information which keeps the prices at

the same level.

b. Absent Characteristic

The agriculture market doesn’t have low barriers to entry.

c. Explanation

Selling agricultural products requires high level of capital investment in the venture. The

initial capital requirement is the acquisition of agricultural land which requires heavy investment.

Furthermore, the production requires skilled labor, unskilled temporary labor and direct materials

like seeds, fertilizers, pesticides, etc. The turnover period is quite long ranging from 2-3 months

to a year or more. The costs incurred until the point when the product is ready are borne by the

producer which means that working capital requirement is high. The high capital requirement for

land is the most significant barrier to entry in agriculture industry. Another barrier is that

agricultural knowledge is limited, especially the knowledge related to implementing the

technological progress made in agriculture is hard to acquire (Robbins-Thompson).

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d. Government Policy Recommendation

Government should implement policies to allow easier access to funds for entering

agricultural markets. The government should also focus on introducing apprenticeships and

learning programs that focus on building human capital for entry into the agricultural sector.

These two things are the most significant barriers to entry in agricultural market due to which

perfect competition doesn’t exist (Niewolny, and Lillard). Low barriers to entry will ensure that

there are more competitors in the market. Profitability will depend on reducing the costs of

production using technological progress and implementing operational efficiency while

maintaining a standard for the products set by the competition. The competition will lower the

prices and improve quality of these products in the market (Obudzinski).

Part 3

a. Products and prices

First item was the 7th edition of “International Economics” book by James Gerber. The

university bookstore sells it for $260 while Amazon is selling it for $195.90.

The second item was a Centon Data Stick that is being sold by the university bookstore

for $29.98 while Amazon is selling 5 units of the same product for $34.99.

b. Price Differences

The first item is being sold on Amazon at a 25% discount which makes up a significant

proportion of the price of the item. A 10-15% discount is expected when buying from Amazon

compared to other stores. The discount in this case exceeds the expectations.

The Amazon store is selling 5 units of the same item for $34.99 that is being sold on the

university bookstore for $28.98 per unit. This means that the same product is being sold by
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Amazon at a 75% discount which is extremely significant. It was expected that the price will be

lower at Amazon by a maximum of 25% but the reality is far more significant.

c. Explanation for Price Differences

The main reason for lower prices on Amazon is the economies of scales it achieves by

dealing in large volumes. Due to the volume of sales on Amazon, they manage to get much

better terms of trade from the suppliers, buying the products at prices lower than the rest of the

industry. A high volume also allows them to cut down their profit margins for each unit and

focus on selling more units to earn higher profits. The high price elasticity of demand for the

products also helps Amazon increase the sales volume by cutting down its profit margins and

selling products at lower prices.

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Work Cited

Obudzinski, Juli. "Choices Magazine Online". Choicesmagazine.Org, 2016,

http://www.choicesmagazine.org/choices-magazine/theme-articles/theme-overview-addressing-the-

challenges-of-entry-into-farming/beginning-farmer-policy-options-for-the-next-farm-bill.

Niewolny, Kim, and Patrick Lillard. "Expanding The Boundaries Of Beginning Farmer Training And

Program Development: A Review Of Contemporary Initiatives To Cultivate A New Generation Of

American Farmers". Journal Of Agriculture, Food Systems, And Community Development, 2010, pp. 65-

88. Lyson Center For Civic Agriculture And Food Systems, doi:10.5304/jafscd.2010.011.010.

Robbins-Thompson, Kelley. Exploring The Barriers To Entry To Agriculture: Challenges Facing Beginning

Farmers In North Carolina. Nicholas School Of The Environment Of Duke University, 2019. Accessed 5

Nov 2019.