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SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Subject Microeconomics BA0362 Term Academic Year 20152016 Tutorial No l Topics Basic Concept of Economics 1 What is the opportunity cost of a polytechnic education to 2a 2b a the student b the parents c the society What type of economy is i United States of America ii Singapore iii Cuba How are decisions on what goods to produce made in a pure command economy and market economy In a meeting as to whether to store inventory in a companyowned warehouse or rent a warehouse a colleague said We should use our own warehouse and save the cost of renting one Do you agree or disagree with him Explain The following is a set of hypothetical production possibilities for a nation Automobiles Beef Combination thousands thousands of tons A 0 10 B 3 9 C 4 7 D 7 4 E 8 0 a Plot these production possibilities data b i What is the opportunity cost of the rst 3000 automobiles produced ii Between which points is the opportunity cost per thousand automobiles highest In other words between which points is the greatest amount of beef given up for one thousand automobiles iii Between which points is the opportunity cost per thousand tons of beef highest In other words between which points is the greatest amount of automobiles given up for one thousand tons of beef 1 C 1 Label a point F inside the curve Why is this an inefficient point Label the point G outside the curve Why is it unattainable Why points A through E all attainable points How would the following shift the Production Possibility Curve i Advancement in technology ii Decline in quantity of resources Read the summary of the article No new lease for Keppe Club other clubs get leases through to 2030 and 2040 from The Straits Times dated 17 February 2014 Questions relating to the above article will be discussed during the tutorial Multjnle Choice Questions 1 Economics is the study a b C d of how individuals allocate resources among competing uses so as to produce the maximum amount of goods and services in an infinite amount of time of how individuals allocate resources among competing uses so as to maximise the plentiful resources that are available of how individuals allocate scarce resources among competing uses of how individuals allocate scarce resources among competing uses so as to produce all the goods that are necessary Fred and Nan both decide to see the same movie when they are given free tickets to the movie We know that a b C 1 both bear an opportunity cost since they could have done other things instead of seeing the movie both bear the same opportunity cost since they are doing the same thing the cost of going to the movie is greater for the one who had more choices to do other things neither bear an opportunity cost because the tickets were free In economic terminology the accumulated training and education that workers receive that increases their productivity is referred to as a b C d entrepreneurship human capital labour physical capital The characteristic of command economy is that a b C 1 Countries who optimize the use of their resources are a b C d goods and services produced re ect the preference of individuals in the society decision making is centralised decision making is not centralised the state always know what to produce for the society the PPC below above on moving towards Summary of the article from The Straits Times dated 17 February 2014 No new lease for Keppel Club other clubs get leases through to 2030 and 2040 The Ministry of Law said the Keppel Club will be the first private golf club in Singapore not to get its lease renewed when it runs out in 2021 because the 44 hectares of land Keppel Club occupies is needed for housing development In addition seven other clubs for example Sentosa Golf Club and Orchid Country Club whose leases run out in less than a decade will be offered lease extensions The new leases will run through till 2030 2035 or 2040 The Ministry of Law noted that golfing is enjoyed by many Singaporeans and the presence of golfing facilities adds to the city39s attractiveness as a business hub but golfing and golf clubs are land intensive and there is a need to balance the competing demands for land Therefore the amount of land used for golfing will have to be reduced over time and the sites reallocated for uses such as housing and public infrastructure SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Module Microeconomics BA0362 Term Academic Year 20152016 Tutorial no 2 Topics Demand 1 Draw graphs to illustrate the difference between a decrease in the quantity 4a 41 demanded and a decrease in demand for Japanese Anime comic books Give possible reasons for the change in each graph Analyse how each of the situations below affects the demand for computer software Indicate and explain clearly whether there is a change in quantity demanded or a change in demand If there is a change in demand discuss which determinant is involved e g Number of Buyers Tastes and Preferences etc and in which direction the demand curve shifts a Dell and HP announce a 20 reduction in the price of its personal computers b Apple Computer becomes very popular with youth c The price of electricity increases Brie y explain how the income and substitution effect of a price change leads to a downward sloping demand curve When income increases what would you expect to happen to the demand for Singapore Airlines tickets and Tiger Airways tickets to the same destination Explain with the aid of appropriate diagrams How would you classify these two goods Explain MultiDle Choice Questions 1 Demand re ects the quantity that consumers a want at alternative prices b need at alternative prices c are willing and able to buy at alternative prices d can buy at alternative prices 2 A movement along a demand curve can be caused by a change in a income b the price of a substitute or complement c consumer expectations d the price of the good itself 3 Suppose it is discovered that butter leads to a longer life This information would lead to a b C d a b C d a b C d an increase in quantity demanded an increase in demand a decrease in quantity demanded a decrease in demand The substitution effect of a change in the price of good X is to increase the demand for good X if its price falls decrease the demand for good X if its price rises increase the quantity demanded of good X if its price rises encourage consumers to substitute more of good X with other goods if X s price rises Which of the following is an example of the law of demand A decrease in the price of milk is followed by an increase in milk sales A decrease in the price of milk is followed by a decrease in milk sales An increase in the price of milk has no effect on the amount of milk purchased The amount of milk purchased increases when the price is constant SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Subject Microeconomics BA0362 Term Academic Year 20152016 Tutorial No 3 Topics The concept of supply and market equilibrium 1 Explain how each of the following situations affects the supply of leather belts Indicate whether there is a change in quantity supplied or a change in supply If there is a change in supply discuss which determinant is involved and in which direction the supply curve shifts a The price of beef declines b A new leathertanning machine is developed that works twice as fast and is cheaper than earlier machines c The price of leather boots increases d The government imposes a price ceiling on leather belts preventing the sale of any belts above 50 of the existing price An increase in the price of grains used in making cereal will have no impact on the demand for cereal True or false Explain your answer with an appropriate diagram on cereal Draw the following 3 diagrams and determine the change in equilibrium price and quantity i Decrease in demand more than increase in supply ii Decrease in demand less than increase in supply and iii Decrease in demand equals to increase in supply Explain clearly with the aid of diagrams how the following situation will affect the equilibrium price and quantity of California raisins a A fungus wipes out threequarters of the grape crop in California At the same time a preliminary medical study notes that the consumption of only California raisin may help reduce cancer risk but it was still too early to make any rm conclusion b The Californian government decided to impose a price oor on dried prune a substitute for raisins MultiDle Choice Questions 1 With the fall in the price of computer chips a supply of personal computers will decrease b supply of personal computers will increase 0 quantity demanded of computer will increase d b and c will result 2 The Straits Times reported that with the decrease in the cost of producing petrol in Singapore petrol sales have increased by 2 million litres per day This report indicates that a there is an increase in the quantity supplied for petrol b there is an increase in the demand for petrol 0 there is an increase in the quantity demanded for petrol d demand and supply of petrol have increased 3 When the government imposes a minimum price on motorcycles a excess supply will result in the market for helmets b the supply for helmets will increase 0 the demand for helmets will increase d the demand for helmets will decrease 4 Consider the market for chicken An increase in the price of beef will a decrease the demand for chicken creating a lower price and a smaller amount of chicken purchased in the market b decrease the supply of chicken creating a higher price and a smaller amount of chicken purchased in the market 0 increase the demand for chicken creating a higher price and a greater amount of chicken purchased in the market d increase the supply of chicken creating a lower price and a greater amount of chicken purchased in the market 5 During the Christmas season the newspaper reported that some turkeys were contaminated Readers were alarmed by this report At the same time consumers who suffered food poisoning reported this matter to the Ministry of Health which led to a large number of turkeys being held back from sale The result in the market for turkey is a a decrease in equilibrium price and quantity b a decrease in equilibrium price and an increase in equilibrium quantity 0 a decrease in equilibrium quantity and an indeterminate change in equilibrium 2 price 1 a decrease in equilibrium price and an indeterminate change in equilibrium quantity SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Subject Microeconomics BA0362 Term Academic Year 20152016 Tutorial No 4 Topics Elasticity 1 From the data given below calculate the price elasticity of demand for the following price changes using the midpoint formula For your own reference and revision you should include your workings calculations a 150 to 125 b 125 to 100 c 100 to 75 d 75 to 100 e 75 to 50 Points Price Quantity demanded A 150 100 B 125 150 C 100 200 D 75 250 E 50 300 Using the data above a Plot the demand curve b Label each point A to E c Note the elasticity as calculated for each segment ie from Q1 e g from A to B d Locate the midpoint of the demand curve e Identify the elastic and the inelastic regions of the demand curve Good weather actually brought bad news to the rice farmers in Thailand as record harvests sent prices tumbling down Explain why this is so using the concept of demand supply and elasticity Illustrate your answer with the aid of an appropriate diagram The income elasticity of demand for a product is 06 John s monthly income has changed from 1000 to 1200 What will the new quantity demanded of the product by John if the old level was at 400 units per month A 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup What is the crossprice elasticity of demand for chocolate syrup with respect to the price of milk Are the two goods complements or substitutes Calculate the price elasticity of supply for the following a A rise in the price of cabbage from 2 to 250 results in an increase in its quantity supplied from 4000 to 6000 kilograms b A 5 percent decrease in the price of carrots results in a 3 percent decrease in its quantity supplied Multjnle Choice Questions 1 Along the elastic portion of demand curve a total revenue and quantity moves in opposite directions b total revenue and price moves in opposite directions c total revenue and price moves in the same direction d price and quantity moves in the same direction Which of the following statements is false if the demand for a commodity is price elastic a Revenue falls if price rises b The price elasticity of demand is less than 1 c The commodity has many substitutes d Both a and c Yoggibear and Orchard Cow are two brands of avoured yoghurt drinks Their cross price elasticity of demand is 2 The price of Yoggibear rises from 100 to 150 per carton How has demand for Orchard Cow changed a Increased by 80 b Increased by 100 c Decreased by 100 d Decreased by 80 Which of the following statements is correct a Total revenue falls if price goes up and supply is inelastic b Supply is more elastic the longer the time period under consideration 2 C Supply is more elastic over time because producers are able to adjust their production plans and techniques more easily 1 b and C SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Module Microeconomics BA0362 Term Academic year 20152016 Tutorial no 5 Topic Production 1a Fill in the following production chart and use it to answer the questions that 1b 1c 2a 2b follow Number of Total Product Average Product Marginal workers Product 1 10 2 24 3 39 4 52 5 61 6 66 7 66 8 64 Identify the labour input when diminishing marginal returns occur If this is your company do you think you will continue to employ up to 7 units of workers Explain your rationale Explain why diminishing marginal returns set in Explain why must marginal product curve intersect the average product curve at the latter s maximum State the Law of Diminishing Returns How does diminishing returns affect the shape of the Total Product and Marginal Product curves MultiDle Choice Questions Assuming that capital is fixed a business firm can produce 36 units of output per day with 3 workers and 44 units per day with 4 workers Which of the following is incorrect a The marginal product of the fourth worker is 11 b The average product of the third worker is 12 c The firm has already passed the point of diminishing marginal product d The marginal product is below the average product When marginal product begins to decline it means a b C 1 additional units of the variable input are still productive additional units of variable input are no longer adding to output additional units of variable input are contributing less to output than the previous unit both a amp c When average product is at its maximum it is true for that level of output that a b C d marginal product is at its maximum marginal product is falling marginal product and average product are equal both b amp c are correct When marginal product still positive is less than average product a b C 1 total product must be declining total product is rising at an increasing rate total product is increasing at a decreasing rate total product is at its highest When the marginal product of a variable factor begins to fall after reaching some maximum it is due to a b C d the law of decreasing opportunity cost the law of diminishing returns the change in output as plant size increases the fact that the best labourers are hired first and the worst labourers are hired at the margin Singapore Polytechnic School of Business Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Module Microeconomics BA0362 Term Academic year 20152016 Tutorial No 6 Topic Cost 1 Complete the table below Assume the following 0 Each worker costs 100 to hire 0 There is only one machine which costs 500 and is shared among all workers Number Total Average Marginal Total Cost Average Marginal of Product Product Product Cost Cost workers 1 10 600 60 10 2 24 3 39 4 52 5 61 6 66 7 66 a What is the relationship between Marginal Product and Marginal Cost Explain the connection between these two concepts based on data in table b Looking at the Marginal Cost figures in table where does the Law of Diminishing Returns set in 2 Siapaku Furniture manufactures cabinets incurring Total Fixed Costs of 300 and Total Costs as shown in the following table Output TFC TVC TC AFC AVC MC 0 300 1 240 2 680 3 450 4 300 952 5 1200 6 1302 a Complete the above table b Explain clearly why Marginal Cost can be calculated from either Total Cost or Total Variable Cost 3 When labour becomes cheaper only the firm s Average Variable Cost AVC and Average Cost AC curves will shift down Its Marginal Cost MC and Average Fixed Cost AFC will not be affected by the fall in labour cost Give a clear explanation why you agree or disagree with the comments above 4 a Describe clearly the relationship between AFC AVC and MC if any b ACAVC in the long run Explain Multlee Choice Questions 1 In the shortrun production process the Marginal Cost is rising and the Average Total Cost is falling as output is increased The Marginal Cost is a b C d a b C 1 below ATC above ATC between the Average Variable and Average Total Cost curves both a and c All of the following are true of the firm s shortrun cost curves except AFC declines continuously as output increases AVC decreases as long as MC lt AVC ATC increases then decreases as output increases ATC AFC AVC The long run Average Total Cost curve tells us the minimum possible cost of producing any output a b C d a b C when all input are fixed when all inputs can be varied in the single most efficient plant in a plant of given size If a firm s Average Cost are greater than Marginal Cost then the firm is producing beyond its minimum Average Cost level a reduction in output would raise Average Costs an increase in output must raise Average Costs still further above marginal costs 2 d Marginal Cost must be falling SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Module Microeconomics BA0362 Term Academic Year 20152016 Tutorial no 7 Topic The nature of market structure and the perfectly competitive market 1 Illustrate and explain the MRMC approach to profit maximisation for a perfectly competitive firm 2a The table below represents the various costs for Mr Ibrahim s company Complete the table TP TVC MC AVC TFC TC AFC ATC 0 200 50 95 10 580 2b If the output can only be sold at 60 each what market structure is Mr Ibrahim operating in Do you think Mr Ibrahim should remain in production at this price Explain and indicate clearly the amount of his profit or loss 2c Should price fall to 45 which output level will Mr Ibrahim produce State your reasons clearly 3a List two reasons as to why the perfectly competitive firm may incur losses in the short run 3b Illustrate and explain the shutdown condition of the perfectly competitive firm in the short run 3c What type of profits do perfectly competitive firm earn in the long run Why 4 Assume that Mr Mont is a manufacturer of pencils in a perfectly competitive market The firm produces and sells 133 million pencils Its Marginal Cost is 050 and the prevailing market price is 035 per pencil Explain how and under what conditions Mr Mont would be able to continue producing these pencils MultiDle choice auestions 1 Which of the following is NOT a characteristic of the perfect competition market structure a Equally good information for both buyers and sellers b Homogeneous product 0 Large number of buyers and sellers d Restricted entry and exit A firm in a perfectly competitive industry has a total revenue of 200000 per year when producing 1000 units of output per year In this case its average revenue is 200 and its marginal revenue is a b C 1 zero 200 less than 200 indeterminable from the information given Perfectly competitive firms are assumed to respond to changing market condition by varying a price b output 0 market share d information At the short run breakeven price a b C d accounting profits equal economic profits economic profits are negative economic profits are zero economic profits are positive The perfectly competitive firm s short run supply curve is its a b C 1 Average Cost curve above its minimum point Marginal Cost curve above the shutdown point Average Variable Cost curve above the shutdown point Marginal Revenue curve SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Module Microeconomics BA0362 Term Academic Year 20152016 Tutorial No 8 Topic Monopoly 1 Mr Robert Tan the manager of Minisoft says that since his firm is the only firm in the market it can charge a very high price Without having to suffer a reduction in sales Would you agree With Mr Tan Why or Why not Explain At equilibrium a monopolist sells at the price Which is equal to its marginal cost True or false Explain With the aid of an appropriate diagram A pure monopolist sells its output for 400 per unit at the current level of production At this level of output the Marginal Cost is 300 Average Variable Costs are 375 and average total costs are 425 Its Marginal Revenue is 300 What is the short run condition for the monopolist and What output changes would you recommend What can the monopolist do in the long run given its short run condition A monopolist can continue to earn economic profit in the long run but a perfectly competitive firm cannot Do you agree With this statement Explain your answer clearly MultiDle choice auestjons A profitmaximising monopoly Will a produce in the inelastic range of its demand curve b produce in the elastic range of its demand curve c ood the market With goods to deter entry d produce only Where marginal revenue is zero A monopolist s price is the a b C d prevailing market price determined by demand and supply point on the demand curve where the elasticity of demand is unitary point on the demand curve corresponding to the quantity where MR MC point on the demand curve corresponding to the quantity where P MC The difference between a monopolist and a perfectly competitive firm is that a b C 1 AR equals MR for the monopolist but not for the perfectly competitive firm P is greater than MR for the monopolist but P equals MR for the perfectly competitive firm the monopolist maximizes profits where P equals MC but the perfectly competitive firm maximizes profits where MR equals MC the monopolist always makes profits perfectly competitive firms do not Which of the following is true for the monopolist a b C d Marginal revenue is less than the price charged Economic profit is possible in the long run Profit maximizing or loss minimizing occurs when marginal revenue equals marginal cost All of the above is true If a profitmaximizing monopoly is producing at an output at which marginal cost exceeds marginal revenue it a b C d is making losses is maximizing profit should raise price and lower output should lower price and raise output SP Business School Course DAC DBA DBID DBKF DFI DHRMP DIB DTRM Module Microeconomics BA0362 Term Academic Year 20152016 Tutorial No 10 Topic The imperfectly competitive market Oligopoly 1 Suppose Spring Private Limited is a monopolist that manufactures sneakers in Country A because the government tightly controls the permit Identify the new market structure if the government now grants permits to two more firms to manufacture sneakers in the country Explain how you derive at your answer by using any two 122 characteristics of this new market structure What is the single most important characteristic in oligopolistic markets Why Explain clearly what has happened to SingTel s position now that the Singapore telecommunication industry has been liberalised and new players have been allowed into the market How will this benefit the consumers and what type of market structure will the telecommunication in Singapore develop into quotTo maximise profits the oligopolist does not have to raise the price of its product when its marginal cost increasesquot Explain with the aid of a diagram the relevance of this statement using the kinked demand curve model MultiDle choice auestjons 1 For a cartel to operate a the members must be producing a homogeneous product b demand for the cartel39s product must be elastic c demand for the cartel39s product must be inelastic d there must be a single dominant firm If profitmaximising oligopolists collude the result is the same as if the industry were a b monopolistically competitive using price leadership c perfectly competitive d a monopoly It was reported in an article that The Levi Strauss Company had dominated the jeans industry in the 1970s However by the 1980s there were over 200 different labels available in the market It is evident that the jeans market could best be categorized as aan in the 1970s and aan in the 1980s a Perfect competition monopoly b Monopoly oligopoly c Monopolistic competition perfect competition d oligopoly monopolistic competition The gap in the marginal revenue curve of an oligopolist who views his demand curve as kinked is caused by a the failure of the marginal cost curve to intersect the demand curve at the profitmaximising level b the existence of two alternative demand curves that apply to the oligopolist depending on whether it raises prices or lowers them c the ability of oligopolists to make above normal profits if they cooperate with each other d none of the above Suppose an oligopoly consists of two firms Firm A lowers price and Firm B responds by lowering price by the same amount Which of the following will occur if average costs and industry output remain the same a The profits of the two will decrease b The profits of the two will increase c The profits of the two will remain the same d Barriers to entry will come tumbling down and new firms will enter
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