Shoes Socks Combination (hundred pairs) (hundred pairs) Production Possibilities Curve A 95 0 B 85 25 Based on the info provided, C 65 55 Plot the production possibilities curve. D 55 65 E 35 75 F 20 80 G 0 90 Shoes Socks Combination (hundred pairs) (hundred pairs) Production Possibilities Curve A 95 0 B 85 25 Based on the info provided, determine C 65 55 • Marginal opportunity cost of D 55 65 E 35 75 producing 85th hundred pairs of shoes. F 20 80 30 hundred pairs of socks G 0 90 • Total opportunity cost of producing 35 hundred pairs of shoes. 15 hundred pairs of socks • Total opportunity cost of increasing the production of socks from 25 hundred pairs to 75 hundred pairs 50 hundred pairs of socks Combination Reports Site visit
A 200 0 Production Possibilities Curve B 180 2 Based on the info provided, determine C 150 4 • Marginal opportunity cost of D 110 6 E 60 8 having the 4th site visit. F 0 10 50 reports • Total opportunity cost of conducting 6 site visits. 90 reports • Total opportunity cost of increasing the production of reports from 60 to 150. 4 site visits Cross Elasticity, EXY Based on the info below, identify the relationship between the 2 items.
Price Quantity Demanded Coefficient
Relationship Product X Product Y Elasticity Relationship increase 5% decrease 10% EXY = -2 ( < 0) Complement decrease 8% decrease 12% EXY = +2 ( > 0) Substitute increase 5% decrease 5% EXY = -1 ( < 0) Complement decrease 10% decrease 10% EXY = +1 ( > 0) Substitute increase 10% no change EXY = 0 Independent decrease 10% no change EXY = 0 Independent Elasticity of Demand, Ed A fashion boutique was having a year-end sale in December 2018 by giving 20% discount of all items. At the end of the month, the management realised that the total revenue has increased 10%. Explain the economic rationale based on the character of demand and total revenue test. • When price decrease, total revenue increase elastic. • Meaning Ed > 1 the quantity demanded is sensitive to the price change. • If the price is elastic, the total revenue will increase when the price decrease • They can decrease the price until they reach the level of unit elastic. Elasticity of Demand, Ed TransNational has recently raised their bus fare because they want to earn more revenue to cover their rising transportation costs. Explain the economic rationale based on the character of demand and total revenue test. • If the price increase, total revenue increase inelastic. • Meaning Ed < 1 the quantity demanded is not that sensitive to the price change. • If the price is inelastic, the total revenue will increase when the price increase • They can decrease the price they reach the level of unit elastic. Elasticity of Demand, Ed Monopolistic Competition – Short Run Demand & Cost Curves Refer to graph below, explain :- • this firm is having a profit or a 200 loss? Why? Profit. Because when MR = MC, 150 100 the price is more than ATC. • how to determine the output that maximise profit or 10 minimise loss? What is the output of this firm? When MR = MC, Q = 10 so, the output is 10. • Based on the output, calculate the total profit or total loss. At the output of 10, P = RM200, ATC = RM150. RM200 – RM150 = RM50 per unit (Profit). Profit = RM50 x 10 units = RM500 (total profit). Monopolistic Competition – Short Run Demand & Cost Curves Refer to graph below, explain :- • this firm is having a profit or a 220 loss? Why? 180 Loss. Because when MR = MC, 150 the price is less than ATC. • how to determine the output that maximise profit or minimise loss? What is the 6
output of this firm?
When MR = MC, Q = 6 so, the output is 6. • Based on the output, calculate the total profit or total loss. At the output of 6, P = RM180, ATC = RM220. RM180 – RM220 = – RM40 per unit (Loss). Loss = – RM40 x 6 units = – RM240 (total loss). Good Luck!!!
