1.Will a tax of Rp 1.000.000.

, per total output change the optimal scale of a competitive firm if all
firms are identical and any firm can enter the market? Explain by providing several examples in the
real world?
A tax of IDR 1,000,000 per total output will not change the optimal scale of competitive firms in a
situation where all firms are identical and any firm can enter the market. This is because in a perfectly
competitive market, firms will produce up to the point where marginal cost equals marginal revenue
(MC = MR), which is the optimal condition for maximizing short-term profits.
Taxes will only affect a company's total cost of production, but will not affect the point at which
maximum profits are earned. Therefore, the company will continue to produce until the condition MC
= MR is met, without considering taxes.
Real world example:
Agricultural Industry: For example, in the agricultural industry where many farmers produce similar
output, the application of a tax per total output will not significantly affect the optimal scale of
production. Farmers will continue to produce until they reach the point where marginal cost equals
marginal income without taking these taxes into account.
Manufacturing Industry: In manufacturing industries where many producers produce similar goods, a
tax per total output will not affect the optimal scale of production. The company will continue to
produce until the point where maximum profits are achieved without taking taxes into account.
Service Industries: In service industries such as restaurants, salons, or other services where many
providers offer similar services, applying a tax per total output will not significantly affect the optimal
scale of production. The service provider will continue to operate until the point where marginal costs
equal marginal revenue.
In all the examples above, the firm will continue to produce up to the point where maximum profit or
loss minimization is achieved, regardless of taxes per total output because such taxes do not affect the
point at which maximum profits are earned in a perfectly competitive market.
2. Suppose a competitive market consists of identical firm with a long- run MC of Rp. 250.000.,
(there are no fixed costs in the long run). Suppose the demand curve at any price, p is given by Q =
Rp.500.000 – p :
a) What are the price and quantity consumed in the long run competitive equilibrium?
b) Suppose one new firm enters that is different from the existing firms. The new firm has a constant
MC of Rp.100.000., and no fixed costs but can only produce 10 units, 9 or fewer). What are the price
and quantity consumed in the long run comeptitive equilibrium? Are these the same as in (a)?
Explain!

3. Do you think that the efficiency is very important in creating the social welfare? If yes provide your
reasons and if not provide your reasons as well?
Yes, efficiency is indeed crucial in creating social welfare. There are several reasons for this:
Resource Allocation: Efficiency ensures that resources are allocated in the most optimal way. When
resources are utilized efficiently, it means that they are being used to produce the maximum possible
output given the available inputs. This leads to the production of goods and services that are most
desired by society.
Increased Production: Efficiency leads to increased production levels. When firms operate efficiently,
they can produce more goods and services at lower costs. This increased production helps meet the
demands of consumers, leading to higher levels of satisfaction and overall welfare.
Lower Prices: Efficiency often results in lower prices for consumers. When firms can produce goods
and services at lower costs, they can pass on these savings to consumers in the form of lower prices.
This enhances consumer welfare by making goods and services more affordable and accessible to a
larger portion of the population.
Innovation and Growth: Efficiency encourages innovation and economic growth. When firms strive to
operate efficiently, they are incentivized to develop new technologies, processes, and products that
can further enhance efficiency. This innovation drives economic growth, creates new job
opportunities, and ultimately improves overall social welfare.
Environmental Sustainability: Efficient resource allocation also contributes to environmental
sustainability. By using resources more judiciously and minimizing waste, efficiency helps reduce the
negative impact of economic activities on the environment, thereby preserving natural resources for
future generations and promoting long-term social welfare.
However, it's important to note that while efficiency is crucial, it should not come at the expense of
equity or fairness. In some cases, market outcomes may lead to inequalities or inequities that need to
be addressed through redistributive policies or social safety nets to ensure that the benefits of
efficiency are shared by all members of society. So, while efficiency is important, it should be pursued
in conjunction with considerations of equity and social justice to truly maximize social welfare
4. The effect of monopsony power existed at exporter level in vertical natural rubber market that is
considered by many economists to create the lower prices at the farm’s market. If you agree or not
please elaborate your explanation completely?
Yes, I agree that the existence of monopsony power at the exporter level in the vertical natural rubber
market can lead to lower prices at the farm's market. Here's a detailed explanation:
1. **Monopsony Power**: Monopsony occurs when there is only one buyer or a dominant buyer in
the market. In the context of the natural rubber market, exporters might hold significant monopsony
power due to their dominance in purchasing raw rubber from farmers.
2. **Ability to Set Prices**: With monopsony power, exporters have the ability to dictate the prices
they are willing to pay to rubber farmers. Since farmers often have limited alternative buyers, they are
compelled to accept the prices set by the dominant exporters, even if those prices are below what
would prevail in a competitive market.
3. **Impact on Farmgate Prices**: The lower prices offered by exporters due to their monopsony
power directly translate into lower farmgate prices for rubber farmers. This means that farmers
receive less income for their produce, which can negatively affect their livelihoods and economic
well-being.
4. **Market Distortion**: Monopsony power distorts the natural equilibrium of supply and demand in
the rubber market. Instead of prices being determined by the interplay of supply and demand forces,
they are artificially suppressed by the dominant buyer's ability to control prices.
5. **Inefficiency and Market Welfare**: Monopsony power leads to allocative inefficiency and
reduces overall market welfare. Lower prices at the farmgate discourage farmers from investing in
their production processes or improving the quality of their rubber, which can ultimately impact the
quality and quantity of rubber supplied to the market.
6. **Potential Remedies**: To address the issue of monopsony power and its negative impact on
farmgate prices, regulatory measures may be necessary. These could include antitrust enforcement to
prevent monopolistic behavior by exporters, promoting competition among buyers, or supporting
farmers' cooperatives to strengthen their bargaining power vis-à-vis dominant buyers.
In summary, the existence of monopsony power at the exporter level in the natural rubber market can
indeed lead to lower prices at the farm's market, with significant implications for farmers' incomes
and overall market efficiency.
5. Do you agree that government intervention policies are not necessary to control the market in
perfect competition. If yes or not, please provide your explanation?
In the context of perfect competition, government intervention policies are generally considered
unnecessary to control the market. Perfect competition is characterized by a large number of buyers
and sellers, homogeneous products, free entry and exit of firms, perfect information, and no market
power held by any individual buyer or seller. Under these conditions, the market tends to allocate
resources efficiently without the need for external intervention. Here's why:
1. **Price Determination**: In perfect competition, prices are determined solely by the forces of
supply and demand. Firms are price takers, meaning they have no influence over the market price and
must accept the prevailing price determined by market forces. As a result, there is no need for
government price controls or regulations to ensure fair pricing.
2. **Allocation of Resources**: Perfectly competitive markets allocate resources efficiently,
maximizing total surplus (consumer and producer surplus). This efficiency occurs because resources
are allocated to their most valued uses, as signaled by consumer preferences and willingness to pay.
Government intervention, such as price controls or quantity restrictions, could disrupt this efficient
allocation by distorting market signals.
3. **Consumer Welfare**: In perfect competition, consumer welfare is maximized as firms compete
to offer the lowest prices and highest quality products. Since prices are determined by the intersection
of supply and demand, consumers benefit from competitive prices and a wide variety of choices.
Government intervention, if implemented incorrectly, could reduce consumer welfare by interfering
with the competitive process.
4. **Producer Welfare**: Similarly, producers in perfectly competitive markets benefit from the
ability to enter and exit the market freely, leading to normal profits in the long run. Government
intervention that restricts entry or imposes regulations could hinder the ability of firms to compete and
innovate, thereby reducing producer welfare.
5. **Market Dynamics**: Perfectly competitive markets tend to self-regulate over time. If firms earn
profits in the short run, new firms are attracted to the market, increasing supply and driving prices
down. Conversely, if firms incur losses, some may exit the market, reducing supply and allowing
prices to rise. This natural adjustment mechanism ensures that the market remains competitive
without the need for government intervention.
While government intervention may not be necessary in perfectly competitive markets, it may still
play a role in addressing market failures, such as externalities or public goods provision, which are
inherent limitations of the perfectly competitive model. Additionally, interventions to promote
competition and prevent monopolistic practices may be warranted in markets where perfect
competition is not present.