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INTRODUCTORY ECONOMICS FOR ENGINEERING

ECON 1550
Group Assignment

Group Members: Max 5 students/Group

Submission Date: 28th April, 2015; Class Time

Submission Rules:
1. Handwritten assignment
2. A4 size white paper with cover page
3. Equal participation in writing answers
4. For those who do not belong to any group,
they are required to do this assignment
individually

Note: Late submission will not be entertained!

Question 1:
The production possibilities curve below shows the hypothetical relationship between the production of guns
(national defense) and butter (social goods) in an economy.

(a)
(b)
(c)
(d)

Combination

Guns

Butter

A
B
C
D
E

0
14
26
36
44

4
3
2
1
0

What is the marginal opportunity cost of producing the second unit of butter?
What is the total opportunity cost of producing the second unit of butter?
What is the marginal opportunity cost of producing the third unit of butter?
What is the total opportunity cost of producing the third unit of butter?

Question 2:
A production possibilities table for two products, grain and airplanes, is found below. Usual assumptions
regarding production possibilities are implied. Grain is measured in metric tons and airplanes are measured
in units of 1,000.

Combination

Grain
(metric tons)

Airplanes
(1,000s)

A
B
C
D
E
F
G
H

0
14
26
36
44
50
54
56

7
6
5
4
3
2
1
0

(a) Using the below graph construct a production possibilities curve from this information placing grain on
the vertical axis and airplanes on the horizontal axis.
(b) What is the opportunity cost of producing the first unit of airplanes? The marginal opportunity cost of
producing the fourth unit of airplanes?

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Question 3:
A firm has the choice between producing product A, B, or C. In producing the products the firm faces a weekly
cost of $10 for product A, $130 for product B and $200 for product C. The prices received for each product
at different quantities are listed in the table below.

Output

Product A

Product B

Product C

Profit A

Profit B

Profit C

$3.00

$15.00

$35.00

_____

_____

_____

10

2.00

12.00

20.00

_____

_____

_____

15

1.25

9.00

10.00

_____

_____

_____

(a) Compute the firms profit for A, B, and C and enter this data into the table.
(b) Which product will the firm choose to produce and how much output will maximize profit?

Question 4:
Based on the determinants of elasticity, explain what the price elasticity of demand of the following products
would be: (a) ballpoint pens; (b) Crest toothpaste; (c) diamond rings; (d) sugar; and (e) refrigerators.

Question 5:
Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in
column 2. Complete the table and answer the questions.

(1)
Total
product
0

(2)
Total
var. cost
$

(3)
Total
cost

(4)
AFC

(5)
AVC

(6)

(7)

ATC

MC

$ 40

$_____

$_____

$_____

55

_____

_____

_____

_____

$_____

75

_____

_____

_____

_____

_____

90

_____

_____

_____

_____

_____

110

_____

_____

_____

_____

_____

135

_____

_____

_____

_____

_____

170

_____

_____

_____

_____

_____

220

_____

_____

_____

_____

_____

290

_____

_____

_____

_____

_____

(a) At a product price of $52, will this firm produce in the short run? Explain. What will its profit or loss
be?
(b) At a product price of $28, will this firm produce in the short run? Explain. What will its profit or loss
be?
(c) At a product price of $22, will this firm produce in the short run? Explain. What will its profit or loss
be?

Question 6:
(a) The long-run industry supply curve in a constant-cost industry graphs as a horizontal line. Explain.
(b) What is the relationship between the long-run supply curve in a constant-cost industry and elasticity?

Question 7:
What is GST? Explain the phenomena of imposing GST in Malaysia.
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