1)Explain the term"market structure". 2)In economic theory, what is the short-run? 3)What is the long run? Explain and demonstrate. 4)What are Economies of Scale? Demonstrate and explain. 5)Contrast" diseconomies of scale" with diminishing returns
Market structure can be defined as the interconnected characteristics if a market such as the number of buyers and sellers, level of competition and so on. It can also be seen as nature and degree of competition in the market for goods and services. Alternatively, it can be defined as the organizational and other related characteristics of a market. Short Run:- In economics, it is well-known fact that the economy behaves differently depending upon the length of the time under consideration and it reacts to certain stimuli. The short run is not associated with a particular time frame but it has a different meaning for a different firm, industry or economic variable under consideration. In terms of economics, short run can be seen as a time frame in which any firm faces both fixed and variable cost which means that output, wages, and prices are not independent to attain an equilibrium state. Long Run:- In economics, the long run is defined as a time frame in which the variable costs are neutralized by the firm. The firms which are operating in long run, they have a clear understanding that the factor of production cannot be changed by them to maintain an equilibrium between demand and supply. In long run, the only level of production or capacity of production can be changed or they can decide to enter or exit in and from an industry. Economies of Scale:- Economies of scale can be understood as decreeing the cost of production by increasing the level of production. when a greater number of goods and services are produced by the firm at a larger level yielding lesser input cost, the economies of scale is said to be obtained. Simply it means that when the company produces more quantities of products, it will be able to reduce its input costs. This can be easily understood with the concept of bargaining power. When someone buys 1 kg of sugar, he pays $2 but when the same individual buys 100 kg. of sugar, it can cost him $1.5 per kg. which means that when he buys greater quantities, the cost of input reduces. Diseconomies of scale:- Diseconomies of scale can be understood as the higher costs associated with the less production level. It means that the average cost of production for the lesser number of units will be more. It simply means that there is some sort of deficiencies within the firm which increases due to increased variable costs.
Project cost $23 million, generate cash flows $14,000,000, $11,750,000 and $6350,000 over next 3 years. Cost of capital is 20%. what is internal rate of return?
• Project cost = $23 million, Cash flow at the end of year 1 = $14,000,000, Cash flow at the end of year 2 = $11,750,000 Cash flow at the end of year 3 = $6350,000 Cost of capital is 20% Let internal rate of return be r%, Internal rate of return is defined as the rate at which present values of inflows and outflows of the project discounted are equal, Therefore, we have, $23,000,000 = 14,000,000/(1+r) + 11,750,000/(1+r)^2 + 6,350,000/(1+r)^3 by trial and error, try first 20% then 25% to find that it lies between 20% and 25%, by linear interpolation of NPVs at 20% and 25%, we have, => Internal Rate of Return (r) = 21.572%
Valuation of inventory under IFRS
IFRS requires that inventory should be valued at lower of cost or market value whichever is lower. FIFO Under IFRS, FIFO method is one of the acceptable methods for deriving the cost of inventory, the cost has been mentioned as $ 803,000/- in the question. Replacement cost It has been mentioned in question as $ 770,000 /- Net realizable value = Selling price – cost of disposal = 820,000 – 40,000 = $ 780,000 Net realizable value Net realizable value – profit margin = 780,000 – 75,000 = $ 705,000 Under IFRS, replacement cost is used as market value, when it is lower than net realizable value but higher than (net realizable value – normal profit margin), hence $ 7,70,000 will be considered as market value