Date 14/1/2021 Time: 5:30 pm Total Weighted Mark:
40
Student’s Name
Student’s ID
Course Name/ Code Microeconomics/ BUS 201
Instructors Dr. Myriam Aloulou, Dr. Nabil Dahdah
Semester Fall, 2020
maximize the economic profits of firms
CLOs as per the Syllabus
CLO2: Describethe production possibilities frontier and relate its importance to utilizing firms’ economic resources efficiently.
CLO3:Construct the supply and demand curves and interpret them to understand market forces.
CLO7:Employ the costs, output concepts and revenue curves and their relationships in order to maximize the economic profits of firms.
CLO8:Use the characteristics of market structures to formulate market economic activities of the firm.
Questions 1 2 3 4 5 6 Total
Point 4 4 8 8 8 8 40
Student Mark
Note: This Project accounts for 40 % of the Student Final Grade.
Question 1: (4 marks)
Based on the figure below, answer the following questions:
a. What this figure represents. Explain. (2 marks)
This figure represents the Production Possibility Frontier (PPF) which states the possible combination of two goods that can be achieved with the given resources and technology.
b. How does the above curve illustrate the tradeoff we must make to increase food production?(2 marks)
This curve shows the tradeoff between the two goods. (i.e increase in one units of good 1 will lead to decrease the production of more and more units of other goods)
At Point C, 40 units of clothing and 20 units of food are produced
If, move from Point C to Point D, then30 units of clothing and 30 units of food are produced
This shows that in order to gain 1 more units of food , 1 units of cloths is to be sacrificed.
Question 2:(4 marks)
In Italian restaurant, Jack needs 1 hour and a half to prepare pizza and 1 hour to make lasagna.Pascal needs 2 hours to make a pizza and 1 hour and a half to make a lasagna.
1. Which one has the comparative advantage in preparing pizza, in preparing lasagna.Explain your answer. (2 marks)
2. Which one has the absolute advantage in preparing lasagna, in preparing Pizza. Explain your answer. (2 marks)
Hours of labor required to produce one unit of
Pizza Lasagna
Jack 1.5 1
Pascal 2 1.5
Output produced in one hour
Pizza Lasagna
Jack 1/1.5=0.67 units 1/1= 1 unit
Pascal ½= 0.5 unit 1/1.5=0.67 units
Opportunity cost of pizza in terms of lasagna Opportunity cost of lasagna in terms of pizza
Jack 1/0.67=1.49 lasagna 0.67/1 = 0.67 pizza
Pascal 0.67/0.5=1.34 lasagna 0.5/0.67=0.75 pizza
1. Jack has comparative advantage in the production of lasagna as its opportunity cost is 0.67 units of pizza which is lower than that of Pascal of 0.75 units of pizza. Jack has to give up 0.67 units of pizza to produce one unit of lasagna, so its’s opportunity cost is lower.
Pascal has comparative advantage in the production of pizza as its opportunity cost is 1.34 units of lasagna which is lower than that of Jacks of 1.49 units of lasagna. Pascal has to give up 1.34 units of lasagna to produce one unit of pizza, so its’s opportunity cost is lower.
2. Jack has absolute advantage in the production of both pizza and lasagna, as he can produce more of the goods then Pascal.
Question 3: 8 marks
1.Choose one company (preferably local) and analyze the main economic activity of the company. (2 mark)
Let us consider the case of Burger King. This firm comes under fast food industry and the firm is mainly engaged in selling burgers and drinks in the industry.
2. Identify the type of market structure the company falls into stating reasons explaining such classification. (3 marks)
The market structure represented by fast food industry is Monopolistic Competitive type of market structure. The characteristics of this form of market structure are as follows:
a. The product sold by the firm in the industry is differentiated.
b. Advertising and Selling cost play an important role in increasing the sales of the product.
c. There is free entry and exit of firms from the industry.
d. There are many buyers of the product on the industry.
3.Discuss the advantages and the disadvantages of the market structure and translate them as strengths and opportunities for the company. (3 marks)
Some of the advantages include super normal profits for the firm in short run and facing a downward sloping demand curve. If a firm is competitive, then it can increase revenue from sales by selling more and more units of the product. Some of the disadvantages include deadweight loss in the industry because prices are greater than marginal cost of production of the firm and there is excess capacity in the industry because output produced in the industry is not equal to the minimum of the average cost of the firm.
The firm has been quite competitive and this has helped the firm in increasing its sale by selling good quality product to the consumers who have fairly inelastic demand for the product. It has to spent huge amount of money in the form of selling cost to increase its sale compared to the competitors in the industry.
Question 4: 8 marks
Price Quantity demanded Quantity supplied
3 150 60
4 100 100
5 70 130
6 50 150
1. Plot the demand and supply curve in the same graph (2 marks)
2. What is the market equilibrium (1 mark)
Market equilibrium price $4, Quantity 100 units.
3. If the price of chocolate is $3 describe the situation in the market and explain how the price adjusts. (2 marks)
If price of chocolate $3, Qd= 150 & Qs = 60 means Qd>Qsexcess demand (shortage)
Excess demand = 150 – 60 = $90 units lead to increase in price until Qd&Qsbecomes equal.
4. If the price of chocolate is $5, describe the situation in the market and explain how the price adjust. (2 marks)
If price of chocolate $5, Qd = 70& Qs = 130 means Qd< Qs excess supply
Excess supply = 130 – 70 = $60 units lead to decrease in price until Qd& Qs becomes equal.
5. Chocolate sellers know that Valentine’s Day is next weekend,and they expect the price to be higher, so they withhold 60chocolates from the market this weekend. What will be the price this weekend? (1 mark)
So, supply of chocolate decrease by 60 units at each price, hence supply curve shifts leftward by 60 units, so new equilibrium price will increase to $5 and new equilibrium quantity decrease to 70 units
Question 5: (8 marks)
a) Fill in the empty cells in the table. (0.5x12= 6 marks)
You have been also given following additional info-
Price = $ 10Wage = $ 1500
Labor (L) Output (q) Marginal Product of Labor =(Change in Q)
Value of the marginal product of labor = (P)(MPL) Wage Marginal profit = (VMPL- wage)
0 0 - - 1500 -
1 400 400 4000 1500 2500
2 720 320 3200 1500 1700
3 960 240 2400 1500 900
4 1020 60 600 1500 -900
b) When the company should stop hiring Workers. Explain (2marks)
The company will hire workers till when the value of marginal product of labor is greater than or equal to the wage rate. As the VMPL<wage rate, then it would be unprofitable for the company to hire more workers, therefore stop hiring more workers. Here , we can see that for 3 workers,VMPL>wage and after that VMPL<wage , this implies that the company should stop hiring workers after 3 workers.
Q6. Problem Solving (8 Marks)
1. Dream Line manufacturing has a fixed scale of plant with the levels of total product given in the tablebelow for different levels of labor. Complete the table by calculating the average product and marginal product. (0.5x8=4 Marks)
Quantity of labor
(workers) Total product Average product = TP/W Marginal product
0 0 0 -
1 29 29 29
2 54 27 25
3 77 25.67 23
4 95 23.75 18
2. Tony's Pizza Company has some missing cost data and needs your help to provide the missing data in the following table in spaces identified as A,B, C, D, E, F, G&H. (0.5x8=4 Marks)
TOTAL OUTPUT TC AFC AVC ATC MC
1 110 60 50 110 -
2 150 30 45 75 40
3 195 20 45 65 45
4 260 15 50 65 65
5 330 12 54 66 70
You have been also given following additional info-
• All costs are in $
• Total fixed cost of company is $ 60
1. Project Assessment Criteria
The assessment of the project will be undertaken by the instructor.
Marks distribution will be as follows:
Report Body 40 marks
2. Project Submission Date:
This project is due on week 16; and it is an Individual project. The report should be uploaded using the (Moodle) ONLYbefore the due date.
Project due date is January24th, 2021.
3. Late Submission Instructions:
All students must comply with the submission deadlines.
Students are required to submit the report in soft copy also through the Turnitin system which is available online at https://lms.ectmoodle.ae
High “Similarity Index” will result in low marks for the project.
4. Format:
The cover page is important; please keep it in your submission.
High similarity in the answers will affect your marks negatively.
Follow the instructions that will be explained to you in class by the instructor.
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