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Q1. Imagine a society that produces technological goods and consumer goods, which we’ll call “Special
Robots cars” and “Rice in tons”
a. Draw a hypothetical production possibilities frontier for “Special Robots cars” and “Rice in tons”. Using
the concept of opportunity cost, explain why it most likely has a bowed-out shape.
b. Show a point that is impossible for the economy to achieve.
c. Show a point that is feasible but inefficient. (3 marks)
Q2: Write short notes on following in your own words. (4)
a. Consider you being a manager, how you see, Utility and law of diminishing marginal utility.
Answer: As a manager utility and law of diminishing marginal utility helps in making market strategies
that could decrease the rate of diminishing marginal utility to provide higher rate of utility on each unit
purchased by the customer to maximize profits. Also it helps analyzing the satisfaction a customer gets
from each unit of product purchased and helps building strategies for sales according to the nature of
product. It also helps determining the correct combination of labor and resources to provide maximum
utility.
b. Consider you being a Production manager, how you see, production costs. (TC, FC, VC, MC).
Answer: Production cost is the cost that a business spends to manufacture a product or provide a
service. It can include all type of expenses like raw material, labor, tool etc. But all expenses are
classified under different type of costs, some are fixed costs and doesn’t every on daily or monthly
basis like rent of the factory and they are known as fixed costs (FC). Other expenses on the other hand
like raw material or labor wages may differ on the quantity of the product being produced. Some days
lesser amount of raw material and less people for labor are needed and may vary according to the
situation, this cost is called variable cost(VC) and should be determined according to the situation if
production to maximize profits and decrease total cost. Total cost(TC) is the total amount of expenses
occurred in order to produce a product or service. It includes the labor, the rent for the factory or office
and all other fixed and variable costs occurred in producing a product. When the capacity of production
is maximized and covers fixed costs then in order to produce extra units of the product you need to buy
and use more resources, the cost of these additional resources in order to increase the quantity of the
product produced is called marginal cost (MC).
Q4: Calculate Price elasticity of demand using mid-point method. Interpret your answer (3 Marks)
Point X: Price of Strawberries = 4 Quantity demand of Strawberries = 120
Point Y: Price of Strawberries = 6 Quantity demand of Strawberries = 80
Answer: (6-4)/5= 0.4*100 = 40 % change in price
(80-120)/100 = -0.4*100 = - 40% change in demand
Change in demand/ change in price
40/40= -1(price elasticity demand)
Interpret:
Price elasticity demand is negative and it shows that the price elasticity demand is inelastic.
Q5: Calculate the slope of following point. Interpret your answer (2 Marks)
Point X: Price of Apples = 4 Quantity demand of Apples = 120
Point Y: Price of Apples = 6 Quantity demand of Apples = 80
Answer: (q2-q1)/p2-p1
Slope =80-120/6-4= -40/2= -20
The slope is negative because the demand decreases when the price increases.