any economists in the house?

[tris-]

yet another assignment question to boost the general knowledge of the FH populus.

ive got a short run economic model of an monopoly which ive created my self. it has no relevance to any real world values or anything like that.
i understand where marginal cost intersects marginal revenue, you get a point which shows the maximum profit making capability.

to cut a long story short, ive increased variable, total and marginal costs. demand is the same. the price for my 'thing' increases as i need to add a surcharge. demand stays the same etc.

ive noticed my profit area decreases slightly. now im wondering if im doing something wrong as if i add a surcharge, should it not stay the same?

 

[tris-]

must be someone ffs.
we got sports dudes, science dudes, law dudes, medic dudes.

 

[cHodAX]

must be someone ffs.
we got sports dudes, science dudes, law dudes, medic dudes.

Yeah but we only have one freak and that is you Tris!

 

[Vladamir]

Yeah but we only have one freak and that is you Tris!

Says the sex crazed perverted maniac

 

[Bugz]

ZOMG. These questions shouldn't even be on a fuckin forum! They should only be asked to the professionals!11!!!!1

As to answer your question, unless you're surcharge overcomes your costs then the profit margin (basically after the breakeven) will decrease. However, if you're talking in terms of graphing, then the profit margin should be the same (if surcharge = costs) but simply higher up on the table and more to the right.

The only other explaination I can imagine is that variable costs scale according to this extra surcharge.

It's hard to be precise without extra background knowledge or a financial graph of the situation.

 

[Azurus]

ZOMG. They should only be asked to the professionals!11!!!!1
.

Shameless self plug

 

[Bugz]

Shameless self plug

That was the idea... xD

well...one of them...

 

[old.Tohtori]

ive got a short run economic model of an monopoly which ive created my self.

Well there's ya problem

 

[tris-]

As to answer your question, unless you're surcharge overcomes your costs then the profit margin (basically after the breakeven) will decrease. However, if you're talking in terms of graphing, then the profit margin should be the same (if surcharge = costs) but simply higher up on the table and more to the right.

The only other explaination I can imagine is that variable costs scale according to this extra surcharge.

It's hard to be precise without extra background knowledge or a financial graph of the situation.

its a model of a transatlantic airline adding surcharge for their fuel. while the price of oil per barrel only doubles, the airlines quadruple the price.
ive made the model my self because it doesnt need to be exact, just demonstrate i know wtf is going on.
the surcharge easily overcomes the costs, BA and the like just charge what ever the fuck they want.

i know the market structure is an oligopoly but we are told to imagine there is only one airline and do a monopoly model for it.

when ive graphed mine the profit has gone higher up the scale, but to the left and is a fraction smaller, which makes me believe i may of drawn something a fraction out.

 

[Neffneff]

i prolly dont know wtf im talking about, but is it sommit like:

fuel = 10 quid
ticket = 20 quid

profit = 100%/10 quid


fuel = 20 quid (raise of 10)
ticket = 30 quid (surcharge of 10)

profit = still 10 quid/ but now less than 100%?

i.e. might look fucked.

slap me if im being dumb ere.

 

[Bugz]

its a model of a transatlantic airline adding surcharge for their fuel. while the price of oil per barrel only doubles, the airlines quadruple the price.
ive made the model my self because it doesnt need to be exact, just demonstrate i know wtf is going on.
the surcharge easily overcomes the costs, BA and the like just charge what ever the fuck they want.

i know the market structure is an oligopoly but we are told to imagine there is only one airline and do a monopoly model for it.

when ive graphed mine the profit has gone higher up the scale, but to the left and is a fraction smaller, which makes me believe i may of drawn something a fraction out.

Any chance you can upload the graph?

 

[tris-]

ive had to take a photo of it off my mobile :\

the solid lines are the origional ones before adding on surcharge.

the dotted lines are moved up (as cost increased).

in the middle its quite messy. it goes

AVC
AVC1
Mc
MC1
ATC
ATC1

AVC being the first u shaped curve.

P and P1 at the side show the profit areas. on looking they are the same, but measuring them with a rule indicates a different area. which im putting down to inaccuracy in drawing the whole piece of shit mother fucker.

 

[Bugz]

ive had to take a photo of it off my mobile :\

the solid lines are the origional ones before adding on surcharge.

the dotted lines are moved up (as cost increased).

in the middle its quite messy. it goes

AVC
AVC1
Mc
MC1
ATC
ATC1

AVC being the first u shaped curve.

P and P1 at the side show the profit areas. on looking they are the same, but measuring them with a rule indicates a different area. which im putting down to inaccuracy in drawing the whole piece of shit mother fucker.

It's quite hard to see.

Have you tried using a Breakeven graph on Excal to find the point at which you break even and then measuring the profit gap after that up to a certain sales amount (~20,000 sales for example).

It would be a darnsight easier to measure up assuming each graph stops at the same number of sales.

I.e.

 

[tris-]

It's quite hard to see.

Have you tried using a Breakeven graph on Excal to find the point at which you break even and then measuring the profit gap after that up to a certain sales amount (~20,000 sales for example).

It would be a darnsight easier to measure up assuming each graph stops at the same number of sales.

I.e.

hmm tbh i think thats outside the scope of what we are supposed to be doing

we just supposed to be moving the AVC, ATC and MC curves up as the price increased and on that same graph draw in a profit area.

i can tell you that surcharges dont only cover the cost of the fuel, they charge much more than the fuel costs and probably cover the cost 4 times over. id assume profits go up, but then what the fuck do i know.

 

[Bugz]

hmm tbh i think thats outside the scope of what we are supposed to be doing

we just supposed to be moving the AVC, ATC and MC curves up as the price increased and on that same graph draw in a profit area.

i can tell you that surcharges dont only cover the cost of the fuel, they charge much more than the fuel costs and probably cover the cost 4 times over. id assume profits go up, but then what the fuck do i know.

Well in that case, it just sounds like you're achieving break even early (the point at which you start to make a profit). The area of the profit margin should in effect, be unending, since the sales will relate to the variable costs based on sales.

On this diagram, the green line represents the idea of your monopoly, in the sense that the income greatly overweights the total costs. Hence why the profits begins earlier. Because your breakeven is being achieved quicker (hence why it moves to the left - instead of right). The profit area can't really tell us much since the income (y-axis) is different (higher up on the graph = more money) Thus, even if the profit area is smaller to start off with, the income may still be greater - however it may blossom later on etc.

Your graph looks complicated in the sense it doesn't show the T.C & Income as neverending because ultimately, if one carries on, so will the other, and we generally want a business to succeed. In this sense, profit area is void since they begin at different spots and never end.

If the increases percentage wise for each were exact (i.e original cost to revenue ratio was EXACTLY the same as cost to revenue ratio after the increases), then the profit area would measure exactly the same.

However, as you said, the fuel is only about £2 extra (example) and the surcharge is £8 or so. Therefore, the profit area won't be the same because the profit is likely to build up a lot quicker because you're making more of a profit.

If any of that makes any sense - probably doesn't

 

[tris-]

what your showing me there is a graph ive never experienced before.

have you ever had experience with the graph ive shown there? according to my tutor its a common model for a monopoly. obviously the curves are different etc but is the same idea across the board.

 

[Bugz]

what your showing me there is a graph ive never experienced before.

have you ever had experience with the graph ive shown there? according to my tutor its a common model for a monopoly. obviously the curves are different etc but is the same idea across the board.

You're graph is the opposite of my graph in the sense one axis scales downwards. I haven't really used that graph (taught different ways) but I'm pretty sure the basis is the same.

But looking at yours and trying to visualise it in mine is confusing the shit out of me xD

I still am sure that the profit shouldn't be the same in area because not everything is being increased by the same ratio. If you had followed a direct 10% increase on fuel = 10% increase on costs then the area should be the same but you're basically doing 10% increase in fuel. = 40% increase in costs so to speak so the area will be different. If you're teacher is just wanting to see a movement in the graph and not in the profit area then use a direct ratio.

 

[tris-]

I still am sure that the profit shouldn't be the same in area because not everything is being increased by the same ratio. If you had followed a direct 10% increase on fuel = 10% increase on costs then the area should be the same but you're basically doing 10% increase in fuel. = 40% increase in costs so to speak so the area will be different. If you're teacher is just wanting to see a movement in the graph and not in the profit area then use a direct ratio.

ive basically moved the lines up as best i can in the same proportions. the thing isnt accurate in the sense that it uses no numbers.

the question was -

using an economic model of the firm, analyse how a profit maximising airline would react to a rise in fuel prices.
-----

im not sure but imo a profit maximizing airline would try to only raise prices as much as is required as it wants to retain customers.

although laws of demand show the ticket sales would fall in the long run, people will find other ways to cross Atlantic (boat or some shit).

 

[yaruar]

yet another assignment question to boost the general knowledge of the FH populus.

ive got a short run economic model of an monopoly which ive created my self. it has no relevance to any real world values or anything like that.
i understand where marginal cost intersects marginal revenue, you get a point which shows the maximum profit making capability.

to cut a long story short, ive increased variable, total and marginal costs. demand is the same. the price for my 'thing' increases as i need to add a surcharge. demand stays the same etc.

ive noticed my profit area decreases slightly. now im wondering if im doing something wrong as if i add a surcharge, should it not stay the same?

It's scary, i'm an economist (well that's what my degree was in) and i can't focus on that at all.. If you still need help tomorrow i'll have a look when my brain works

 

[tris-]

It's scary, i'm an economist (well that's what my degree was in) and i can't focus on that at all.. If you still need help tomorrow i'll have a look when my brain works

good shit. im going to redraw my graph and scan the bitch in aswell for anyone interested.