economics

mahesh123

Assessmenttwo1.docx

Home >Business & Finance homework help >Economics homework help >economics

Name: ___________________________ Student ID: _______________ Workshop number: ______

AUT-logo-tab

Faculty of Business, Economics and Law

Bachelor of Business

(Incorporating Graduate Diploma in Business & Graduate Certificate in Business)

ECONOMICS FOR BUSINESS ECON861

ASSESSMENT TWO

Due Date: Tuesday 16 June 2020

Total marks: 50 marks

Surname: __________________________

Name: _____________________________

Student ID: _________________________

SECTION 1: Multiple choice questions (10 Marks)

For each of the following, choose the single best response to each question and clearly indicate your answer in the space provided.

1. The inflation rate in 2012 was 3.5%. In 2013 it fell to 2.7%. This means that

A. prices are decreasing.

B. real GDP is decreasing.

C. prices are increasing.

D. real GDP is increasing.

Answer: _____________

2. Nominal GDP in the base year 2010 was $80 billion. The CPI in 2015 was 1200 and Nominal GDP experienced a growth of 5% between the years 2010 and 2015. Taking all of the above into consideration, calculate Real GDP as measured by the base year (2010) prices.

A. $92 billion.

B. $84 billion.

C. $76 billion.

D. $68 billion.

Answer: ______________

3. If the average cost of production of 25 units is $19 and 26 units is $18.90, then the marginal cost is:

A. -$0.10.

B. $18.95.

C. $21.50.

D. $16.40.

Answer: ______________

Use the table below to answer the following question.

Worker	1	2	3	4	5
Total output	25	70	125	170	200

4. In the table above diminishing returns will set in with the:

A. Second worker (after the first worker).

B. Third worker (after the second worker).

C. Fourth worker (after the third worker).

D. Fifth worker (after the fourth worker).

Answer: _____________

5. When any firm is making a normal profit then definitely:

A. Marginal cost equals average variable cost.

B. Marginal revenue equals average total cost.

C. Average revenue equals average total cost.

D. Impossible to know.

Answer: ____________

6. A market is competitive if which of the following are true?

(i) each buyer is small compared to the market

(ii) a single firm has a significant impact on the market price

(iii) the good offered for sale is largely the same

A. (i) and (ii) only

B. (ii) and (iii) only

C. (i) and (iii) only

D. (i), (ii) and (iii)

Answer: _____________

7. If a firm decides to cut all production at its factory so that output is zero, which of the following is true?

A. Variable cost will be zero

B. Total cost will be zero

C. Average cost will be zero

D. All of the above.

Answer: _____________

8. Consider the competitive firm below. At P2, a profit-maximising firm is making an economic:

A. Profit, shown by (P3-P2) x Q2

B. Profit, shown by (P2-P1) x Q2

C. Loss, shown by (P3-P2) x Q2

D. None of the above.

Answer: _____________

9. Suppose that mobile phones are part of the market basket used to compute the CPI. Then suppose that the quality of mobile phones improves while the price of mobile phones stays the same. If Statistics New Zealand precisely adjusts the CPI for the improvement in quality, then, ceteris paribus:

A. mobile phones will no longer be included in the market basket

B. the CPI will rise

C. the CPI will fall

D. the CPI will stay the same.

Answer: _____________

10. The value of all intermediate goods:

A. and all final goods are included in the Gross Domestic Product (GDP)

B. are included in GDP only if they were produced in the previous year

C. are included in the GDP only if they are purchased by firms rather than households

D. are not included in GDP.

Answer: ____________

SECTION 2: Short answer questions (40 Marks)

Question 1: Perfect Competition (10 Marks)

Consider the graphs below, which depict a firm in a perfectly competitive market in long run equilibrium. Answer the questions that follow.

$C:\Users\skimpton\Desktop\Capture.PNG$

a) What is the market equilibrium price and quantity?

______________________________________________________________

b) What is the optimal quantity that the firm should produce?

______________________________________________________________

c) What type of profit will this firm make and how many firms are there in this market?

______________________________________________________________

d) Assume there is an increase in market demand of 600 units at each price. Add this to the above diagram and state the new equilibrium price. (To add a new demand curve, click on the above graph and then click on the ‘Insert’ tab. Select ‘Shapes’ and then click on ‘Lines’. Click on where the demand curve will be according to the new quantity)

______________________________________________________________

e) What is the new optimal quantity that the firm should produce?

______________________________________________________________

f) What is the firm’s new profit?

______________________________________________________________

g) Free entry will allow new firms to enter the market, returning the market to a long run equilibrium. Add this to the above diagram. (To add a new supply curve, click on the above graph and then click on the ‘Insert’ tab. Select ‘Shapes’ and then click on ‘Lines’. Click on where the supply curve will be according to your knowledge on long run equilibrium)

h) What is the final market equilibrium price and quantity?

______________________________________________________________

i) What is the optimal quantity that the firm should produce and what profit will they now make?

______________________________________________________________

j) How many firms are now in the market?

______________________________________________________________

Question 2: Monopoly and Price discrimination (14 Marks)

“Volcanic Bus Tours” is the only company that sells bus tickets to guided tours on Rangitoto Island. The graph below shows the Demand (D) and Marginal Cost (MC) curves for their bus tour tickets.

(a) Draw the Marginal Revenue (MR) curve in the graph above. (To do this in WORD, click on the above graph and then click on the ‘Insert’ tab. Select ‘Shapes’ and then click on ‘Lines’. Click on where the MR will insect Price and then click on where MR will intersect Quantity) (1 marks)

(b) What is the monopoly market outcome? (6 marks)

Monopoly price = $___________ Monopoly quantity = ___________ Monopoly profit = $___________

(c) In addition to the “regular” monopoly price you calculated above, the monopoly now decides to practice price discrimination, by introducing two new prices: a “business” price at $50 and a “student” price at $30.

(These different prices will be sold through different sales channels: the “regular” tickets are sold at the ticket booth on the island, for casual tourists; the “business” tickets are booked through corporate travel agents; and the “student” tickets are sold at University student centres. We assume that the corporate clients have the highest willingness-to-pay, followed by casual tourists, followed by students.) (7 marks)

Number of “business” tickets sold = __________ Profit from “business” tickets = $__________

Number of “regular” tickets sold = __________ Profit from “regular” tickets = $__________

Number of “student” tickets sold = __________ Profit from “student” tickets = $__________

Total Profit from all ticket sales = $__________

Question 3: GDP and Inflation (16 Marks)

Consider the following production data for a small economy and answer the below questions. (Note, 2012 is the base year).

	Price of Wine (per litre)	Quantity of Wine	Price of Olives (per kg)	Quantity of Olives
2012	$2	100	$5	20
2013	$3	110	$6	20
2014	$2.5	120	$6	25

(a) Calculate nominal GDP for the years 2013 and 2014. (2 marks)

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(b) Calculate real GDP for the years 2013 and 2014. (2 marks)

(d) Calculate the GPD deflator for the years 2013 and 2014. (2 marks)

(e) Calculate the annual inflation rate for the years 2013 and 2014. (2 marks)

(f) Assume the “typical” consumer in this economy consumes the following basket of goods: 30 litres of Wine and 10 kgs of Olives. What is the cost of this basket for the years 2013 and 2014? (2 marks)

(g) Construct a CPI index based on your answer to (f) for the years 2013 and 2014.

(2 marks)

(h) Calculate the rate of inflation for 2013 and 2014 based on your CPI index. (2 marks)

THE END

DO NOT TURN THIS PAGE UNTIL INSTRUCTED