Handicrafts of Pakistan are famous for their uniqueness, assortment and quality standards and therefore have established its status within and outside the country. From last few years, handicraft business has flourished remarkably due to high demand of handicraft products like floor coverings, antiques, decorative items, furniture, garments, home furnishing etc. These products can be made from wood and also from synthetic material. High demand attracts many firms to enter in this market. Few firms have started business in urban area while others have established business in rural area. Suppose, Waqar group of industries, a new entrant in handicraft industry, starts business in rural area. This industry manufactures handicrafts from pure wood. Handicraft manufacturing through synthetic material leads to environmental degradation. That’s why environment ministry has imposed a tax on the handicraft industry involved in manufacturing of all kinds of synthetic products.
Keeping in view the above scenario, give answers of following questions with proper reasoning.
- How would imposition of tax on synthetic products affect Waqar group of industries in particular and overall handicrafts industry in general?
- Given that Waqar group of industries is working in rural area, which economic benefits this industry would get in the long run? Give answer by using concepts of long-run production and cost theory.
(Write “to the point” answer, avoid irrelevant or extra details.)
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How would imposition of tax on synthetic products affect Waqar group of industries in particular and overall handicrafts industry in general?
In my opinion There should be the great effect on Waqar group of industries in particular and overall handicrafts industry in general because due to the Tax over their products they have to increase the prices of their synthetic products which may be decrease the demand of their products. You can expand your own solution according to my idea solution
Given that Waqar group of industries is working in rural area, which economic benefits this industry would get in the long run? Give answer by using concepts of long-run production and cost theory.
As we know that Cost theory is related to production theory, they are often used together. However, the question is usually how much to produce, as opposed to which inputs to use. That is, assume that we use production theory to choose the optimal ratio of inputs (eg. 2 fewer engineers than technicians), how much should we produce in order to minimize costs and/or maximize profits? We can also learn a lot about what kinds of costs matter for decisions made by managers, and what kinds of costs do not. We use long run costs to decide scale issues, for example mergers. We assume the long run is long enough for all costs to be variable.
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