economic assignment question
JANUARY SEMESTER 2014 BMME5103 MANAGERIAL ECONOMICS
ASSIGNMENT
Question 1
a. Explain the production possibilities frontier (PPF).
[2 marks]
b. Analyse what it means for the PPF to be bowed out from the origin (curved), and what it means for the PPF to be a straight line.
[3 marks]
c. State the Law of Increasing Opportunity Cost and explain why it holds.
[3 marks] [TOTAL: 8 MARKS]
Question 2
a. “As the price of oranges rises, the demand for oranges falls, ceteris paribus.” Explain.
[3 marks]
b. “The price of a bushel of wheat was $3.00 last month and $2.50 today. The demand curve for wheat must have shifted leftward between last month and today.” Discuss.
[4 marks]
c. Some goods are bought largely because they have ‘snob appeal.’ For example, the residents of Beverly Hills gain prestige by buying expensive items. In fact, they would not buy some items unless they are expensive. The law of demand, which holds that people buy more at lower prices than at higher prices, obviously does not hold for the residents of Beverly Hills. The following rules apply in Beverly Hills: high prices buy; low prices, don’t buy.” Do you agree? Discuss.
[6 marks]
[TOTAL: 13 MARKS]
Question 3
The minimum wage in year 1 is $1 higher than the equilibrium wage. In year 2, the minimum wage is increased so that it is $2 above the equilibrium wage. We observe that the same number of people is working at the minimum wage in year 2 as in year 1. Does it follow that an increase in the minimum wage does not cause some workers to lose their jobs? Explain your answer. [TOTAL: 6 MARKS]
Question 4 Widgets are provided by a competitive constant-cost industry where each firm has fixed costs of $30. The following chart shows the industry-wide demand curve and the marginal cost curve of a typical firm:
INDUSTRY-WIDE DEMAND
FIRM’S
ASSIGNMENT
Question 1
a. Explain the production possibilities frontier (PPF).
[2 marks]
b. Analyse what it means for the PPF to be bowed out from the origin (curved), and what it means for the PPF to be a straight line.
[3 marks]
c. State the Law of Increasing Opportunity Cost and explain why it holds.
[3 marks] [TOTAL: 8 MARKS]
Question 2
a. “As the price of oranges rises, the demand for oranges falls, ceteris paribus.” Explain.
[3 marks]
b. “The price of a bushel of wheat was $3.00 last month and $2.50 today. The demand curve for wheat must have shifted leftward between last month and today.” Discuss.
[4 marks]
c. Some goods are bought largely because they have ‘snob appeal.’ For example, the residents of Beverly Hills gain prestige by buying expensive items. In fact, they would not buy some items unless they are expensive. The law of demand, which holds that people buy more at lower prices than at higher prices, obviously does not hold for the residents of Beverly Hills. The following rules apply in Beverly Hills: high prices buy; low prices, don’t buy.” Do you agree? Discuss.
[6 marks]
[TOTAL: 13 MARKS]
Question 3
The minimum wage in year 1 is $1 higher than the equilibrium wage. In year 2, the minimum wage is increased so that it is $2 above the equilibrium wage. We observe that the same number of people is working at the minimum wage in year 2 as in year 1. Does it follow that an increase in the minimum wage does not cause some workers to lose their jobs? Explain your answer. [TOTAL: 6 MARKS]
Question 4 Widgets are provided by a competitive constant-cost industry where each firm has fixed costs of $30. The following chart shows the industry-wide demand curve and the marginal cost curve of a typical firm:
INDUSTRY-WIDE DEMAND
FIRM’S