Management Science Department

Bahria University
Class BS(A/c & Fin)-1A & 1B Assignment #1
Subject: Microeconomics
Date: March 29, 2022
Marks 10.0 (2 each)

Question 1. Tony and Patty produce skis and snowboards. The following tables show their
production possibilities. Each week, Tony produces 6 snowboards and 12 skis and Patty
produces 3 snowboards and 6 skis.

Tony's Production Possibilities Patty's Production Possibilities

Snowboard Skis Snowboard Skis
(units per week) (units per week) (units per week) (units per week)
30 0 6 0
24 3 3 6
18 6 0 12
12 9
6 12
0 15

a. What is Tony's opportunity cost of producing a (i)snowboard and (ii)skis?

b. What is Tony's opportunity cost of producing a (i)snowboard and (ii)skis?
c. If Tony and Patty specialise and trade 1 snowboard for 1 ski, what are the gains from
trade?

Question 2(a). Draw a graph of Yucatan’s PPF and explain how your graph illustrates a trade off

Foods Sunscreen
(pounds per month) (gallons per month)
300 0
200 50
100 100
0 150

(b). If Yucatan produces 150 pounds of food per month, how much sunscreen must it produce if
it achieves production efficiency?

(c). What is Yucatan’s Opportunity cost of producing

(i) 1 pound of food, and (ii) 1 gallon of sunscreen?
Q3(I). The demand and supply schedules for potato chips are in table:

Price Quantity Demanded Quantity Supplied

(cents per bag) (millions of bags a week) (millions of bags a week)

50 160 130
60 150 140
70 140 150
80 130 160
90 120 170
100 110 180

a. Draw a graph of the potato chip market and mark in the equilibrium price and quantity.
b. If the price is 60¢ a bag, is there a shortage or a surplus, and how does the price adjust?

II. In above Problem, a new dip increases the quantity of potato chips that people want to buy by
30 million bags per week at each price.
a. Does the demand for chips change? Does the supply of chips change? Describe the change.
b. How do the equilibrium price and equilibrium quantity of chips change?

III. In above Problem, if a virus destroys potato crops and the quantity of potato chips produced
decreases by 40 million bags a week at each price, how does the supply of chips change?

IV. If the virus in Problem 22 hits just as the new dip in Problem 28 comes onto the market, how
do the equilibrium price and equilibrium quantity of chips change?

Q4(I). If due to some non-price factors, both the demand as well as the supply of a particular
commodity is decreased. Explain the following cases with the help of graph

A. When the decrease in demand is equal to the decrease in supply

B. When the decrease in demand is more than the decrease in supply
C. When the decrease in demand is less than the decrease in supply

Q4(II). If due to some non-price factors there is a positive change in the demand for a particular
output but at the same time there is a decrease in supply of the same product then explain the
following cases with the help of graph

A. When the increase in demand is equal to the decrease in supply

B. When the increase in demand is more than the decrease in supply
C. When the increase in demand is less than the decrease in supply