Reference no: EM132503053
HI5003 Economics for Business - Holmes Institute
Production Possibility Frontier (PPF)
Problem 1
In 2017, Nepal's production of rice and machinery was published by the Nepal Bureau of Statistics (NBS) as indicated by the table below:
Production in Nepal
|
Position
|
P
|
Q
|
R
|
S
|
T
|
U
|
V
|
W
|
X
|
Y
|
Z
|
|
Rice (1000 tons)
|
0
|
10
|
26
|
37
|
45
|
50
|
55
|
59
|
66
|
77
|
80
|
|
Machinery (units)
|
90
|
89
|
85
|
80
|
75
|
70
|
65
|
60
|
50
|
30
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on the table above, a production possibility frontier (PPF) for Nepal can be plotted as below:
Use the NBS production table and production possibility frontier to answer the following questions:
A. Name positions B, V and D. Also, as indicated in the table, supposing Nepal is operating at level T, what is the opportunity cost of producing 10,000 more tons of rice?
B. Use the graph below to answer the questions that follow:
B1: Suppose Nepal begins to manufacture fertilizers. Explain the impact of the discovery of fertilizers on Nepal's economy using one of the PPF above.
B2: Also, supposing there is a discovery of steel in Nepal, explain the impact of steel on the economy of Nepal using one of the PPF above.
B3: Finally, the Minister of Finance in Nepal advices the World Bank that in order to increase rice production and machinery, each sector requires USD 50 billion, or a total of 100 billion. This 100 billion is made available by the World Bank. Explain the impact of these 100 billion budgetary allocations to the economy of Nepal. Use one of the PPF above.
Problem 2
Suppose the graph below represents the demand and supply for cotton wool at various prices, answer the questions that follow.
The graph above is represented in the table below. Please complete the table below identifying the shortage or surplus.
|
Price per Kg
|
Demand (DD)
|
Supply (SS)
|
Surplus (+)
Shortage (-)
|
|
1
|
89
|
29
|
|
|
2
|
70
|
40
|
|
|
3
|
55
|
55
|
|
|
4
|
39
|
67
|
|
|
5
|
25
|
80
|
|
|
6
|
11
|
95
|
|
|
|
|
|
|
A. Based on your findings in the table above, what is the market equilibrium price and quantity for cotton wool?
B. Also, please examine the effects of government legislation on the cotton wool market if the government fixed the price of cotton wool at 2.00?
Price Elasticity of demand and supply
Problem 3
The price for cigarettes sold by Big Tobacco Co Ltd was 6.00 per packet in March 2018. During the month of March, the consumption of cigarettes was 1000 packets. However, the Board of Directors of Big Tobacco Co Ltd decided to increase the price by 25% during the month of April. As a manager you noted that price elasticity of demand was 0.8. As a manager Big Tobacco Co Ltd:
A. As a manager Big Tobacco Co Ltd store advise your management of the strategy that could be adopted by your firm to maintain sales.
Also, advise your government on recommended interventions in the cigarette market.
Production costs
Problem 4
John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills.
John's course was for 3 months. John had to pay $2,000 as tuition for the 3 months.
After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account. He also borrowed $50,000.00 from his friend whom he pays 6 percent interest per year.
John's first year of business can be summarised as follows:
|
Item
|
Amount $
|
|
Revenue
|
250,000
|
|
Labour cost
|
120,000
|
|
Pizza ingredients
|
50,000
|
|
Equipment
|
10,000
|
Calculate John's accounting profit and economic profit? Show your work.
Market Structure: Perfect Competition and Monopoly
Problem 5
The above diagram illustrates the short run cost curves for Sarah Mat, a rice farmer in Queensland. Calculate the profit or loss for Sarah Mat and, examine the key characteristics for perfect competition firm with reference to Sarah's farm.