ECO101 Microeconomics Assignment Solution

ECO101 Microeconomics Assignment Solution

ECO101 Microeconomics Assignment Solution

Answer 1

  1. Variable Cost – The cost of cocoa is direct material cost and it varies with the number of chocolates produced during the month. Thus, it is a variable cost.
  2. Fixed cost-The cost of business rates (local taxes) does not vary with number of chocolates produced during the month therefore, it is a fixed cost.
  3. Fixed cost- The cost of advertising campaign for a new chocolate bar is not likely to vary with the number of chocolates produced during the month therefore, it is a fixed cost.
  4. Variable Cost- The cost of electricity paid quarterly for running the mixing machines is directly allocable to the monthly production of chocolates from those machines and the cost varies with the production. Thus, it is a variable cost.
  5. Variable cost- The cost of overtime pay varies with the number of chocolates produced during the overtime hours. Thus, it is a variable cost.
  6. Fixed cost- The cost of basic minimum wage agreed with the union is a sunk cost and has to be paid irrespective of number of chocolates produced. Thus, it is a fixed cost.
  7. Variable cost- The cost of wear and tear on wrapping machines varies with the number of chocolates wrapped during the month therefore it is a variable cost.
  8. Fixed cost- The cost of depreciation on machines due to their age does not vary with the number of chocolates produced during the month. Thus, it is a fixed cost.
  9. Fixed cost- The cost of interest on a mortgage of a factory, the rate of interest of which rises over the course of month is a fixed cost since the rise in the rate of interest is not due to increase in production during the month.

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Answer 2

a)

Output (Units)

TC ($)

AC ($)

MC ($)

0

55

-

-

1

85

85

30

2

110

55

25

3

130

43.33

20

4

160

40

30

5

210

42

50

6

280

46.67

70

7

370

52.86

90

8

480

60

110

9

610

67.78

130

10

760

76

150


b. The total fixed cost at

  • An output of 0 units is $55
  • An output of 6 units is $100

c. The average fixed cost at

  • An output of 5 units is $12
  • An output of 10 units is $46

d. The total variable cost at an output of 5 units is $150

e. The average variable cost at an output of 10 units is $30

Answer 3

ECO101 Microeconomics Assignment Solution

The above diagram provides us that the organization dealing with the price cuts will be on the kinked demand curve where the marginal cost will be always above than the average total cost and marginal revenue will be lower than the demand. Here on x axis units of outputs are there and on y axis price and cost in terms of revenue is there.

In this all the organization are competing each other but not directly with the price increase. They are cutting the prices for their products and in that way there is competition.

Answer 4.

(a)

ECO101 Microeconomics

In the above diagram we are assuming that there are no exert anilities with the consumption level, and hence there will be negative externalities with the social cost cure which lay above that the private cost curve. This is the diagram showing the balance between the private cost curve and social cost curve.

ECO101 Microeconomics Assignment Solution

(b) Private markets are money motive markets and hence their main motive is related with the money earning capacities and potentials in the market. Public goods are generally prepared for the welfare of the society and which are hence not prepared or are not interestedly prepared by the private sector. This is the main reason of the productivity of public goods by public sectors only.

(c) (i) The Judicial System – Yes

(ii) Pencils – No

(iii) The quarantine service – Yes

(iv) The Great Wall of China - Yes

(v) Contact Lenses - No

Answer 6:

a. Firm A

Quantity

0

1

2

3

4

5

6

Total Revenue ($)

0

10

20

30

40

50

60

Average Revenue ($)

0

10

10

10

10

10

10

Marginal Revenue ($)

0

10

10

10

10

10

10

Total cost ($)

30

42

50

60

76

100

140

Marginal cost ($)

0

12

8

10

16

24

60

Average cost ($) ($)

-0

42

25

20

19

20

23.33

Firm B

Quantity

0

1

2

3

4

5

6

Total cost ($)

100

134

154

177

216

266

366

Average cost ($)

0

134

77

59

54

53.2

61

Marginal cost ($)

0

34

20

23

39

50

100

Price ($)

140

130

120

110

100

90

80

Marginal Revenue ($)_

0

130

55

30

17.5

10

5

Total Revenue ($)

0

130

240

330

400

450

480

b. Firm A is operating in long run.

Firm B is operating in short run.

c. Firm A is operating under perfect competition.

Firm B is operating under imperfect competition.

d)

Level of output for:

Firm A - 140

Firm B – 480

e)

The profit positions for these are as follows:

Firm A – Firm A is less profitable but a consistent profitability entail in the organization as it is a perfect elastic organization with a long run business.

Firm B – Firm B are having huge profits in its short run but is not to be considered a perfect elastic organization as it is dealing with imperfect elastic organization and with its short run capacity of making funds.

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