Assignment 1
Note that when you are answering questions that require mathematical calculations, you should provide details as to how the answers were derived. In completing your answers, you should use graphs wherever possible. Always provide a brief explanation of each graph, including how it relates to your overall answer/argument.
Question 1
a. Explain the link between scarcity, choice and the production possibility curve. In your answer use graphs and include a description of the three concepts in your own words (300 words maximum).
b. Outline the major factors that determine the type of economic system existing in a country. Based on the factors you noted above, describe the principal differences between the Australian economy and the Chinese economy (300 words maximum).
Question 2
a. There has been a breakthrough in the manufacturing of solar-powered motor vehicles that will substantially reduce their costs of production. Use demand and supply curves to illustrate what will happen to:
i) the equilibrium price and quantity of solar-powered motor vehicles.
ii) the equilibrium price and quantity of conventional motor vehicles.
b. In an attempt to increase the use of solar-powered motor vehiclesthe government decides to set a minimum price for solar-powered vehiclesthat is below the market price. Do you think this is a good idea? Explain your decision using graphs.
Question 3
Explain what will happen to consumer and producer surplus and deadweight loss if the government imposes a tax on sellers for each radio they produce in order to raise government income? Include in your answer an explanation of the three concepts - consumer surplus, producer surplus and deadweight loss.
Question 4
The local cinema wants to increase its total revenue. It is considering the introduction of a 10% discount to locals. The company has estimated that there are two types of local customers who will have different responses to the discount offer. The likely responses of the two groups are shown in the table below.
|
|
Group A
(ticket sales per week)
|
Group B
(ticket sales per week)
|
|
Ticket sales before the 10% discount
|
1.55m
|
1.50m
|
|
Ticket sales after the 10% discount
|
1.65m
|
1.70m
|
i) Using the midpoint method, calculate the price elasticities of demand for Group A and Group B.
ii) Explain how the discount will affect total revenue from each group.
iii) Should the company offer the discount if it wants to increase its total revenue.
iv) Describe the impact on the demand elasticity for the original company when another cinema opens in the town.
Question 5
a) Complete the cost schedule below:
| Total Product |
Total Fixed Cost (TFC) |
Total Variable Cost (TVC) |
Total Cost (TC) |
Marginal Cost (MC) |
Average fixed cost |
Average variable cost |
Average total cost |
|
|
$ |
|
|
(AFC) |
(AVC) |
(ATC) |
|
$ |
|
$ |
$ |
$ |
$ |
$ |
| 0 |
50 |
|
50 |
|
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| 1 |
|
|
70 |
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| 2 |
|
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85 |
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| 3 |
|
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95 |
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| 4 |
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100 |
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| 5 |
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110 |
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| 6 |
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130 |
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| 7 |
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165 |
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| 8 |
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215 |
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| 9 |
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275 |
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b. If the firm is operating in a perfect market where the price is $35 dollars how many units should this firm produce in order to maximise profit? Explain your answer.
c. Graph the average variable cost, average total cost and marginal cost and marginal revenue curves.
7 references