Name Shahzar Ahmed

Question 1

Collusion is the phrase used to describe a group that makes joint decisions. Collusion in
Oligopolies occurs when a few market participants make coordinated decisions to influence
the output price of a product. Oligopoly occurs when a small number of large enterprises
control the majority of the industry's sales.
Advantages of such decision-making could be the following:
 Producers in oligopoly markets have the ability to influence the market by working
together to raise prices and/or lower costs. The move to cut production helped save
money, just like OPEC did during the epidemic when prices dropped into the
negatives, suggesting that consumers would pay to get rid of the oil.
 Price wars and increasing consumer surplus might come from competitive oligopoly,
for example, OPEC's ability to regulate oil prices, which has a significant influence on
all economies and goods on a worldwide scale.
 Larger players can obtain economies of scale, which eventually results in cheaper
product pricing.
 Stable supply - Depending on the market situation, a consistent supply of oil might be
a benefit. For instance, when WTI crude oil prices fell, those who had acquired futures
contracts were required to accept delivery but lacked the space to keep a large
amount of oil.
 Encourage additional funding for research and development
Disadvantages of such decision-making could be the following:
 Consumer surplus decreases as a result of collusion by driving up costs for
consumers.
 The entry of new businesses may be deterred.
 A decrease in customer options since, in contrast to natural market dynamics,
cooperation determines supply and demand.
 Cartel-like conduct lessens competition and may raise prices. o Intentional entrance
obstacles could be put in place.
 There might be a lack of financial security.

OPEC decided to reduce oil production for the following reasons:

 Oil consumption decreased as a result of the lockdown, which resulted in an oil glut
and raised storage costs. Oil was being disposed of by traders for a fee.
 Storage space shortage pushed OPEC to reduce supplies.
The production reduction was intended to raise oil prices, which have dropped into negative
territory as a result of a record excess brought on by the global blockade.
Change in demand and Supply Curve before the decision:
The unprecedented decline in oil demand caused the demand curve to move largely to the
left (D2), whereas the decision to reduce supply at the time did not occur. According to the
graph below, this would cause prices to drop and the market to experience a surplus.
Change in demand and Supply Curve after the decision:
Oil prices would marginally rise following the decision to reduce production, but they would
still be lower than they were before to the outbreak. By the end of the year, the demand curve
(D1) will have slightly shifted to the right due to the change in the supply curve (S1) and the
new equilibrium's increased price.

OPEC operates in an Oligopoly market. When there are just a few suppliers, manufacturers,
or distributors of a certain product, the market is said to be in an oligopoly. By doing this, the
group will have the advantage of setting the product's price and supply in a way that protects
their interests. The Organization of Petroleum Exporting Countries ("OPEC"), where a small
group of nations (13 nations) control oil supply and pricing, is the perfect illustration of an
oligopoly.
Key features of such a market are:
 Only few large firms dominate the market ·
 The product offered might be same, as in the commercial aircraft business, or
different, like in the soft drink industry.
 Entry into the industry is restricted because of the presence of significant players in
the market.
 Interdependence among market participants, such as how a change in Pepsi's price
will impact Coke.
Question 2

How many articles was the business producing?

 The marginal cost is equal to the marginal revenue at 92 Articles.
What was the total profit?
 Total Revenue minus Total Cost (34,500 – 32,000) is EUR 2,500.
Explain conceptually how you arrived at the profit maximizing level of output. You don't need
to show exact calculations.
The measures below were taken to maximize output while maximizing profit.
 To calculate the total cost for each level of production, separate fixed and variable
costs and add them together. Divide the change in total cost by the change in output
to determine the marginal cost at each level.
 Calculate revenue at each level by multiplying the cost of each item by the total
number of items.
 Divide Change in Revenue by Change in Output to determine Marginal Revenue at
each level.
 To calculate the change in price, first deduct the margins of revenue and cost. It will
be the output that maximizes profits when the Change in Price, at a specific output
level, hits Zero, that is, when MC equals MR.

How many journalists would you have to fire?

 In order to maximize profits, the company would have to fire 4 people. Instead of 92
articles each month as it was previously, the new profit-maximizing level is now 54
articles per month. Thus, in light of the existing circumstances, this results in 4
additional employees.

What is your new total profit?

 After subtracting 12,000 from 13,500, the new total profit is EUR 1,500.
Why did you fire the journalists? Explain your answer conceptually. You don’t need to show
exact calculations.
Reasons for the layoff of journalists are:
 The profit significantly decreased as a result of the price per piece dropping from EUR
375 to EUR 250. Because of the decline in profit, there was a lesser total profit, or
EUR 1,500 as opposed to EUR 2,500 before.
 Because maximizing profits is the company's top priority, a decrease in profits would
result in increased expenses and a loss of revenue. Keeping more workers wasn't in
the best interests of the business.
  As contrast to 8 journalists and 92 articles earlier, the gap between marginal cost and
marginal income became zero at 4 journalists and 54 articles. 4 journalists have to be
let go in order to maximize profits (8 minus 4 journalists)

Question 3

Cyclical unemployment is the kind of unemployment that a pandemic might cause in a

country like India.
According to The Economic Survey of 2018–19, 85% of the Indian population continues to
work in unorganized industries such domestic services, vehicle repair, grocery shops, and
construction. Due to the fact that the labor is seen as "legitimate," this form of employment
might be deemed "quasi-legal." However, because it is unregulated and not protected by a
contract, a pandemic like this may result in these people losing their jobs.
The absolute lockdown that the prime minister ordered on March 24, 2020 caused a stunning
decline in income for small company owners, forcing them to fire the majority of their staff. A
brief, little recession caused the overall demand to decline.
The uncertainty led to a reduction in consumer expenditure. This led to a rise in
unemployment among daily wage employees, domestic helpers, and travel companies until
the year's end, when the lockdown was gradually removed and businesses started to slowly
reclaim their markets. Given the brief duration of the pandemic, the unemployment that
resulted from it was cyclical.
Demand-led recession is caused by such a pandemic.
Household consumption, investments, government spending, and the gap between imports
and exports all contribute to aggregate demand in an economy. The mysterious and deadly
virus that caused the pandemic caused instability around the planet. Even though it was
necessary and beneficial, the lockdown caused income disruption for the vast majority of the
people. The lack of income and unemployment also caused the demand and spending
capacity to decline, which decreased aggregate demand. A decline in aggregate demand
also lowers GDP. Consumers and investors chose to save their money rather than spend it,
which slowed the flow of money through the economy.

Therefore, this pandemic was a recession driven by demand

Due to the aforementioned dynamic, aggregate demand and aggregate supply in India shifted
leftwards.
 Aggregate Demand move to the left - As a result of a decline in consumer spending
and investment intentions, aggregate demand decreased and shifted to the left. The
price of commodities decreases while supply remains constant and demand moves to
the left.
 Aggregate Supply shift towards left - When the lockdown was implemented, demand
fell sharply but supply stayed the same for a while. This produced excess in the
market and caused the aggregate supply curve to move to the left.

Due to the decrease in demand in this instance, the aggregate demand curve will move to the
left.
 The market excess will cause the aggregate supply curve to initially skew left, but later in the
year it will turn right as demand and investment adapt.

Question 4

Following the pandemic-induced crisis, the Indian government should implement

expansionary fiscal policies.
 Government Expenditure - In a country like India, where more than half of the
population was unemployed after the lockdown, it should introduce relief programs like
provide unemployment compensation to daily wage workers, farmers, free travel for
migrants without a job, control basic medical costs, and provide minimum healthcare
facilities to the underprivileged.
 Taxes: Lowering taxes immediately benefits consumers by giving them more money to
spend. Many democratic nations use this well-known tactic during times of crisis and
recession.
Following the pandemic-induced crisis, the Reserve Bank of India should adopt the following
Financial Policies:
 Purchase government bonds to inject cash into the economy, giving the populace
additional purchasing power to affect demand via spending.
 Reduce Interest Rates: The government should lower borrowing costs to encourage
customers to take out loans and spend the money they borrow, which would boost
demand and market liquidity. Additionally, it should release some of the debt owed by
farmers and workers earning a daily salary, allowing small enterprises and the jobless
to postpone loan repayments.