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 - Boundless

    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

    MC' MC ATC MR = D 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

    QL2 QLI MFC2 MFCI MRP QUANTITY OF LABOR

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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