SEMESTER 3 / YEAR 2019

TUTORIAL 6

CHAPTER 6

COURSE : MICROECONOMICS
COURSE CODE : BBEC1013
DEPARTMENT : MANAGEMENT, ACCOUNTING AND FINANCE
LECTURER : DR.YASOTHA NAIR

Student’s Name : _______________________________

Student’s ID : _______________________________

Batch No. : _______________________________

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 SECTION A

Instruction: Answer ALL the questions in this section. This section carries a total of 40
marks.

1) Explain the meaning of the law of diminishing returns. (5 marks)

2) Discuss the concept of returns to scale ( 5 marks)

Table 1: Jane’s Farm Production

Quantity Total cost

(gallons per day) (dollars per day)
0 400
100 703
200 880
300 1,008
400 1,160
500 1,410
600 1,840

3) Jane’s Farm produces and sells milk. The market for milk is perfectly competitive.
The market price of milk is $2.50 per gallon. The relationship between the farm's
output and total costs is shown in the Table 1.
Calculate Jane’s:
(i) Total Cost (TC) (3 marks)
(ii) Marginal Cost (MC) (3 marks)
(iii) Total Variable Cost (TVC) (3 marks)
(iv) Average Variable Cost (AVC) (3 marks)
(v) Average Total Cost (ATC) (3 marks)

[Total: 15 marks]

4) Consider the following two scenarios:

a) The marginal product of a worker in a firm is 10 units. When an additional worker is

employed, his marginal product is less than 10 units. Explain. (3 marks)

b) The average total cost of a firm producing 10 units of output is $200. When it
produces an additional unit, the average total cost increases to $300. Explain
(3 marks)

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5). A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000
on capital and $200,000 on materials.
a) What is the definition of accounting profit and calculate the firm's accounting profit?
(5 marks)

Continuing from question 1a, the firm's factory sits on land owned by the firm that could
be rented out for $30,000 per year.

b) What is the definition of economic profit and calculate the firm's economic profit for
last year? (4 marks)

[Total: 40 marks]