Question 1 (a)

  • Profit per unit = Demand(Price) - ATC

Question 1 (d)

One point is earned for stating that the demand is inelastic because
  total revenue increases as price increases from $16 to $18, or because
  the price elasticity of demand within the price range is less than 1 ,
  or because marginal revenue is negative.

  • Formula

    i)ud ru\!Gu0 001 aoud ut aiurqo aamiaond puetuap JO papuetuap Kmuenb
= aogd u\! ajueqo ainu

  • How to remember

    • Queen is greater than the Princess

    The price elasticity of demand determines whether the demand curve
is steep or flat. Note that all percentage changes are calculated
using the midpoint method 2.... 2.. 2.. 1 FIGURE The Price Elasticity
of Demand (a) Perfectly Inelastic Demand: Elasticity Equals 0 (b)
Inelastic Demand: Elasticity Is Less Than 1 Price $5 4 1. An Increase
n price . 0 Price $5 4 Increase •n price 0 Demand IOO Price $5 4
Increase In pnce . Quantity 90 IOO Demand Quantity leaves the quantity
demanded unchanged. .. leads to an 11% decrease in quantity demanded.
(c) Unit Elastic Demand: Elasticity Equals 1 Price $5 4 Increase In
price 0 IOO Demand Quantity .. leads to a 22% decrease in quantity
demanded. 2.. (d) Elastic Demand: Elasticity Is Greater Than 1 50 IOO
Demand Quantity Price $4 0 (e) Perfectly Elastic Demand: Elasticity
Equals Infinity . At any price above $4, quantity manded is zero.
Demand . At exactly $4, consumers will buy any quantity. Quantity ..
leads to a 67% decrease in quantity demanded. 3. At a price below $4,
quantity demanded is infinite.

Question 1 (e)

  • Accounting Profit ≥ Economic Profit

    profil profit Economic profit is the difference between total
monetary revenue and total costs, but total costs include both
explicit and implicit costs. Economic profit includes the opportunity
costs associated with production and is therefore lower than
accounting profit. Difference Between Economic and Accounting Profit -

    Accounting profit determined by GAAP Includes explicitcosts only
Single entity - accounting period view Used for income tax and
financial performance Economic profit determined by economic
principles Includesexplicitand opportunity costs Marco ma rket/whole
of projecttimelineview Used to determine market entry, stay or exit

    Economic Profit versus Accounting Profit How an Economist Views a
Firm Economic profit Implicit costs Revenue Total opportunity costs
Explicit costs How an Accountant Views a Firm Accounting profit
Revenue Explicit costs

Question 1 (f)

  • Profit = Revenue - Cost

Question 2 (a)

  • Graph for a typical firm should include

    • Marginal Cost

    • Marginal Revenue

    • Demand(Price)

    • Average Total Cost

  • Profit = (Price - ATC)* Quantity


Question 2 (c)

  • A typical labor supply and demand graph should include

    • Marginal Factor Cost: Horizontal

    • Marginal Revenue Product (Marginal Product of Labor): Downward sloping

    • x-axis: Quantity of Labor

    • y-axis: Wage Rate


Question 3 (a)

  • Negative Social Externality

    Price Of cars c A Q, arginal Socia Cost (MSC) arginal Private cost
(MPC) Quantity Of cars

  • Positive Social Externality

    of cars F SC MPC arginal private Benefit (MPB) Marginal Social
Benefit (MSS) Quantity Of cars

Question 3 (b)

  • A lump-sum tax will not change the deadweight loss, since the MC will not change

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