BBBE 1033 ECONOMICS

MICROECONOMICS

TUTORIAL 6

1. May 2016/17

Ahmad quits his job as a marketing manager where he earned RM144,000 a year. He sets up a
business selling imported second hand clothes from Japan. He use his RM200,000 personal
savings that earned interest of RM6,000 per year. During the year, he made RM240,000 in
total revenue and paid RM50,000 for the costs of equipment, utilities, internet service and
office supplies.

(i) Calculate Ahmad’s accounting profit and economic profit. (6 marks)

(ii) “You should have started this business much earlier.” said Ahmad’s friend to him.

Comment on the above statement. (4 marks)

2. September 2017/18

Joseph is thinking of quitting his job as a marketing manager where he earned RM240,000 a
year. He intends to set up a cafe using his RM300,000 personal savings that earned interest of
RM5,000 per year. During the year, he estimates that he will make RM240,000 in total
revenue. His estimated costs are about RM20,000 for the costs of equipment, utilities, internet
service and supplies.

(i) Calculate Joseph’s estimated accounting profit and economic profit. (6 marks)

(ii) Discuss whether Joseph should quit his job and start the café. (4 marks)

3. April 2015/2016

May quit her job as an office manager where she earned RM60,000 a year. She sets up a cafe
using her RM100,000 personal savings that earned interest of RM2,000 per year. During the
year, she made RM240, 000 in total revenue and paid RM13,000 for the costs of equipment,
utilities, internet service and office supplies.

(i) Calculate May’s accounting profit and economic profit. (6 marks)

(ii) “I should have started this café earlier.” says May.

Comment on the above statement. (4 marks)

4. September 2019/2020

Tim decided to quit from his job as an event manager where he earned RM130,000 a year.
Tim sets up a telecommunication business, using his RM600,000 personal savings that earned
interest of RM6,000 per year. During that year, he made RM240,000 in total revenue and paid
RM13,000 for the costs of equipment, utilities, internet service and office supplies.

(i) Calculate Tim’s accounting profit and economic profit. (6 marks)

 (ii) “I am not sure if I made the right decision to start this business.” says Tim.
Comment on the above statement. (4 marks)

5. State the law of diminishing marginal returns. (3 marks)

6. May 2016/17
With relevant examples, distinguish between ‘fixed inputs’ and ‘variable inputs’ and their
effects on the costs of production. (6 marks)

7. September 2016/17
With relevant examples, distinguish between ‘short run’ and ‘long run’ in production.
(6 marks)

8. Using an appropriate business example, explain sunk cost. (4 marks)

9. Using a Long Run Average Total Cost (LRATC) diagram, briefly explain the ‘economies of
scale’, ‘constant returns to scale’ and ‘diseconomies of scale’. (10 marks)

10. State and briefly explain TWO (2) factors that give rise to economies of scale. (5 marks)