Question 3 - Policy Analysis Energy has become increasingly less affordable for consumers and firms in...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Question 3 - Policy Analysis Energy has become increasingly less affordable for consumers and firms in recent years and this is especially true for natural gas. Recent surges in gas prices have occurred against a backdrop of rising inflation rates here in Australia and overseas. To curb the surge in gas prices, the Australian government is considering a series of regulatory approaches for gas producers. One proposes a cap on the price of gas and the other, a tax on the 'windfall' profits gas companies have earned as a result of the spike in gas prices. The following 2 questions require you to consider the economic effects these policies will have on the market for gas and the firms that produce gas, respectively. i. The gas industry has strong economies of scale and hence is best illustrated using a diagram for a natural monopoly. A natural monopoly has a constant marginal cost and a downward-sloping average total cost curve. Using a full-labelled diagram, evaluate how a cap on the price of gas would work to address rising gas prices. Show the effects of a price cap on the firm's output and economic profit. Discuss who benefits and who loses from this policy approach. In your analysis, you should evaluate the effectiveness of this policy approach and consider any unintended consequences of this policy. 2 (8 marks) ii. A windfall tax will increase the monopoly's fixed cost, as this tax can be seen as a fixed cost. Draw a full-labelled diagram of a natural monopoly firm earning an economic profit. Show the effects of a tax imposed on the economic profits these firms earn. Specifically, the firm's profit-maximising price and output, consumer and producer surplus and deadweight loss. Question 3 - Policy Analysis Energy has become increasingly less affordable for consumers and firms in recent years and this is especially true for natural gas. Recent surges in gas prices have occurred against a backdrop of rising inflation rates here in Australia and overseas. To curb the surge in gas prices, the Australian government is considering a series of regulatory approaches for gas producers. One proposes a cap on the price of gas and the other, a tax on the 'windfall' profits gas companies have earned as a result of the spike in gas prices. The following 2 questions require you to consider the economic effects these policies will have on the market for gas and the firms that produce gas, respectively. i. The gas industry has strong economies of scale and hence is best illustrated using a diagram for a natural monopoly. A natural monopoly has a constant marginal cost and a downward-sloping average total cost curve. Using a full-labelled diagram, evaluate how a cap on the price of gas would work to address rising gas prices. Show the effects of a price cap on the firm's output and economic profit. Discuss who benefits and who loses from this policy approach. In your analysis, you should evaluate the effectiveness of this policy approach and consider any unintended consequences of this policy. 2 (8 marks) ii. A windfall tax will increase the monopoly's fixed cost, as this tax can be seen as a fixed cost. Draw a full-labelled diagram of a natural monopoly firm earning an economic profit. Show the effects of a tax imposed on the economic profits these firms earn. Specifically, the firm's profit-maximising price and output, consumer and producer surplus and deadweight loss.
Expert Answer:
Posted Date:
Students also viewed these economics questions
-
Aloha Swimwear plans to introduce a new performance suit designed for surfing and is using the target costing approach. Projected sales revenue is $4,800,000 ($120 per suit), and target costs are...
-
importance of workalike balance for women as a leader in healthcare. 1. The purpose of the research; 2. Research question/s; 3. Findings and relevant data; 4. Any recommendations and; 5. The...
-
Spotlighting opportunities for business in Africa and strategies to succeed in the world's next big growth market Acha Leke @achaleke - Senior Partner and Chairman of Africa Region, McKinsey &...
-
In a recent study, Americans stated that they were willing to pay $70 billion to protect all endangered species and also stated that they were willing to pay $15 billion to protect a single species....
-
What are family limited partnerships (FLPs), and how are they used as a tax- planning strategy?
-
A 10- m3 storage tank contains methane at low temperature. The pressure inside is 700 kPa, and the tank contains 25% liquid and 75% vapor, on a volume basis. The tank warms very slowly because heat...
-
Do you think a \($10\) million error would be material in a \($100\) million sales company?
-
1. The Chapter Case states that P&G is pursuing a differentiation strategy. Looking at the value and cost drivers discussed in this chapter and the table entitled Competitive Positioning and the Five...
-
The following accounts and corresponding balances were drawn from Delsey Company's Year 2 and Year 1 year-end balance sheets: Account Title Investment securities Machinery Land Year 2 $ 101,400...
-
Fixed costs are distributed, what is the profitability of the remaining services if the company adopts a policy to drop any service with losses? An insurance company received the following...
-
X Company only makes two products, A and B, and uses anactivity-based costing overhead allocation system, with three costpools and three cost drivers. Budgeted costs and driver informationfor 2022...
-
(a) While working on a construction site, a worker got a smallmetal shard embedded in his left eyelid. The physician performed aremoval of a foreign body from the left eyelid with an adjacenttissue...
-
3. For the pendulum shown determine: the equation of motion for the system the natural frequency of the system the damping factor for the system Take K = 250 N/m, C= 1.5 N.s/m and M = 100 kg. The...
-
Jamaican dollar hits new low, surges past $133 against the US$ (Extract from Loop News: July 24, 2018) SHARE TO FACEBOOK SHARE TO TO LINKEDIN SHARE TO WHATSAPP SHARE TO MESSENGER SHARE TO EMAIL SHARE...
-
Record keeping requirements are: a) enforced by the US Government regarding the length of time that certain documents must be kept. b) revised each year by the HR manager. c) changed based on...
-
It is discovered that "Neptune" parameter p is aligned with line of sight! Eccentricity 0.3. and periastron to viewer's left, heading to the right. The radial distance at "p" or r(p) in AUS? A.) 1.77...
-
Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement years. If they can earn 8 percent annually on their funds, how much do they need to save annually?
-
George Johnson was hired on July 1, 2009, as assistant general manager of the Botel Division of Staple, Inc. It was understood that he would be elevated to general manager of the division on January...
-
The Noton Company has operated a comprehensive budgeting system for many years. This system is a major component of the company's program to control operations and costs at its widely scattered...
-
Ollie Mace has recently been appointed controller of a family owned manufacturing enterprise. The firm, S. Dilley \& Co., was founded by Mr. Dilley about 20 years ago, is \(78 \%\) owned by Mr....
Study smarter with the SolutionInn App