economic business 1

Part A – Microeconomics:
Question 1:
Indicate whether each of the following changes in price cause total revenue to increase, decrease or remain unchanged? Explain why. (2 marks each) a Price falls and demand is elastic;

b Price rises and demand is elastic;

c Price falls and demand is unitary elastic;

d Price rises and demand is unitary elastic;

e Price falls and demand is inelastic.

Question 2: a Define, describe and illustrate with a diagram, one opportunity cost for a person starting up their own business (2 marks)

b Explain the difference between implicit and explicit costs (2 marks)

c Explain the difference between accounting profit and economic profit (2 marks)

d How do opportunity cost, explicit cost, implicit cost, accounting profit and economic profit relate to each other? (4 marks)

Question 3: a Why would consumers prefer that the government tax products with elastic, rather than inelastic demand? (5 marks)

b Opponents of increasing the tax on manufacturers of cigarettes argue that the big tobacco companies just pass the tax on to the consumers. Do you agree or disagree? Explain your answer with the assistance of a diagram. (5 marks)

Question 4:
The diagram on the left below illustrate an industry under oligopoly consisting of 10 equal-sized firms whilst the diagram on the right below indicates the price and quantity combination of one particular firm within the industry. Each of the firms produces an identical product.

(a) Assuming that the firms form a cartel, what price will the cartel choose if it wishes to maximise overall profits for the cartel?

(b) What total output must the cartel produce in order to maintain this price?

(c) To what output will an individual firm be restricted if this price is to be maintained (assume all firms are permitted to produce the same level of output)?

(d) If the other firms stick to this output, how much would an individual firm be