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ATGB2343 Introduction to Economics


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!!!