4.
a.
(i) Labour intensive industry refers to industry that requires substantial amount of human labour to produce industrial products. For example, in Australia coal mining is one of the labour intensive industries. According to Australian Coal Association (Coal & the Community), black coal mining is one of Australia’s most important industries that creates employment, low-cost fuel and important source of export revenue.
(ii) Coal mining industry is labour intensive because this particular industry requires a large number of human labours to run heavy machinery and work in large factories to produce the goods.
(iii) Economies of scale is where the long-run average cost declines as production increases in simple explanation where a manufacturing company saves money as its produce higher quantities of its product. In this case, mining industry are likely to develop economies of scale because it has the ability to mass produce products.
(iv) In coal mining industry in Australia there numbers of firms in mining industry, however there are four major companies that dominates coal mining industry – Rio Tinto, BHP Billiton, Xstrata and Anglo American – together account for well over half of total Australian black-coal production.

b.
(i) Capital intensive industry refers to industry that requires substantial amount of capital in the production of goods. In Australia one of the capital-intensive industries is automotive industry.
(ii) Automotive industry is capital intensive because in order to make cars it requires the workers to use expensive equipments that must be properly maintained.
(iii) Based on the explanation given above, automotive industry can develop economies of scale. However, it depends on the firm for example, the firm that produce sports car such as Lamborghini or Ferrari is a type of premium goods that is less likely to mass produce its products, and therefore less likely to have fixed cost as the dominant business expense and less likely to develop economies of scale. It was further noted that in 1965, Australian automotive industry was having short production runs and lacking economies of scale (ABS 2005). But with the help of the government, they created a policy to assists the industry to operate efficiently and competitively in both domestic and international market.
(iv) The Australian automotive industry consists of four major motor vehicle producers – Ford, Holden, Mitsubishi and Toyota (ABS 2005).

c. The fundamental changes in the business environment for the past 30 years are change in technology. Increase in technology leads to increase in productivity and results in increase profitability. For example, with technology development car manufacturers can produce more fuel-efficient car, while in mining industry it could decrease labour cost with more advance machine or equipment.

d.
(i) The introduction of carbon tax will have negative effect on both coal mining and automobile industry. Both industries will pay high tax in result of the carbon pollution.
(ii) With the increase in price of petrol it will likely drive down demand for petrol-driven vehicles, resulting car manufacturers to produce less petrol-driven cars.
(iii) If the RBA decided to cut the cash rate it will affect the demand of buying good and service. Which means people will likely to buy new cars or investing in mining project.

5.
Agency principal/problem occurs when one party (the agent) is hired by another (the principal) to take actions or make decisions that affect the payoff to the principal. In this case, glass installers would be the agent and the CEO of Safelite Glass Corporation would be the principal. The performance evaluation is pay-for-performance incentives which principal offers the agent’s pay to the payoff the principal receives from the agent actions. Outcome is the result of the agent work such as numbers of glass repaired. The principal’s payoff (profit) is the difference between the value received and the wage paid. The agent’s payoff (utility) is the difference between the wages received and the cost of the action taken.

(i) The productivity of the glass installers will be increase in a change from salary to piece rates, on the new system they will get paid based on the fixed amount per window completed. So the more glasses they fixed, the more they will get paid. (ii) Increase in productivity leads to increase in the total output, in this case number of glasses repaired or fixed. (iii) The average cost will stay the same which is the old hourly wage system just like in ‘Previous System’ (iv) The turnover of productive workers will be high because of the setting of piece rate in the ‘New System’ (v) If the workers increase their output more because of the piece rate it will increase the profit for the principal.

3.
(a) The marginal cost is (100-60)/(40-20) = 2

(b) The average cost at Qy = 20 is 60/20 = 3 The average cost at Qy = 40 is 100/40 = 2.5

(c) Yes. The average cost (AC) decrease from 3 to 2.5 when output increase from 20 to 40.

(d) The marginal cost is (180-75)/(45-15) = 3.5

(e) The average cost at Qx = 15 is 75/15 = 5 The average cost at Qx = 45 is 180/45 = 4

(f) Yes. The average cost (AC) decrease from 5 to 4 when output increase from 15 to 45.

(g) Since TC(15, 20) = 130 < TC(15, 0) = 75 + TC(0, 20) = 60 and TC(45, 40) = 260 < TC(45, 0) = 180 + TC(0, 40) = 100. Hence we have economies of scope.

(f) The fixed cost T(0, 0) = 60 – 20 = 40

1.
(a) AFC = TFC/Q TFC = 20, Q = 100 AFC = 20/100 = 0.2, AFC at 50% capacity = 20/50 = 0.4

(b) The company will have economies of scale if they ran at full capacity.

(c) The marginal cost is MC(q) = ½

(d) The average cost AC(q) = (1/2q + 20) / q = ½ + 20/q

(e)

Reference List:

‘Australian Coal Association’ 2012, Coal & the Community, viewed 1 August 2012, http://www.australiancoal.com.au/coal-a-the-community.html

Australian Bureau of Statistics (ABS) 2005, Australia’s automotive industry, Cat. No. 1301.0, Author, Canberra.