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Part A: Definitions and Short Answers. (40 Marks). 1. What do we**More:**

**Part A: Definitions and Short Answers. (40 Marks). **

**1. What do we call the magnitude of the slope of an indifference curve? (2 marks)**

** 2. How does the production possibilities frontier illustrate production efficiency? (2 marks)**

** 3. What is the total revenue test? Explain how it works. (2 marks)**

** 4. What is a minimum wage and what are its effects if it is set above the equilibrium wage? (4 marks) 5. Explain the Hotelling Principle. (3 marks)**

**6. Explain the four common features of all games? (4 marks) **

**7. How does the elasticity of demand influence the incidence of a tax, the tax revenue, and the deadweight loss? (3 marks)**

** 8. How do Pigovian taxes work? (3 marks) **

**9. What does a Lorenz curve show? (3 marks) **

**10. What comparison can you make about a firm operating as a perfectly competitive and as a monopoly? **

**Identify at least 7 characteristics of both market structures. (14 marks) **

** **

**Part B: Calculations and Graphical Analysis. (60 Marks) **

**1. Consider a single price monopoly that faces a market demand curve for a good is given by the equation ???? = 100?.1???? and the total cost function is given as ???????? = 1000 +20???? +.4????2. **

**a. What is the total fixed cost for this monopoly? (2 marks) **

**b. Given that the firm is a single-price monopoly, find the firm?s profit maximizing quantity and price. (3 marks) c. Calculate the consumer surplus, producer surplus and deadweight loss. (3 marks) d. Find the competitive price and quantity (as if the above marginal cost curve represents the market supply curve. (3 marks) **

**e. Plot a graph on which you illustrate the monopoly?s profit maximizing quantity and price, the competitive profit maximizing quantity and price and deadweight loss due to monopoly. (9 marks) **

**f. Calculate the profit of this single price monopoly. (3 marks) **

**g. Calculate the profit if it is a competitive firm. (3 marks) **

**h.Considering if this is a monopolistic firm; calculate the access capacity. (3 marks) **

**2. Tom and Jerry are both entrepreneurs and are both producing hats and scarfs. Tom is producing 1 hat and 3 scarfs per hour whereas Jerry is currently producing 2 hats and 5 scarfs per hour. Now they want to increase their production and export as well. They have limited labor hours to 10 hours per working day. **

**a. Work out the total output per day for the entrepreneurs. (2 marks) **

**b. Who has the absolute advantage in producing hats and scarfs per hour? (2 marks) **

**c. Who has the comparative advantage in producing Hats? (2 marks) **

**d. Who has the comparative advantage in producing Scarfs? (2 marks) **

**e. As a Trade Economist who should you advice to export Scarfs and why? (2 marks) **

**3. Suppose the short-run market demand and supply curves for imported rice in Solomon Islands are as follows. The price are in dollars per kg and the quantities are kilograms per day: ???? = 16?0.5???????? ???? = 2+0.2???????? **

**a. Find the equilibrium price and quantity. (3 marks)**

** b. Plot the demand and supply curve and calculate the producer and consumer surplus (label your diagram) (5 marks) **

**c. Calculate the price elasticity of demand and supply. (2 marks) **

**d. If a tax of $2 per kg is imposed on the producers, state the new demand curve equation and the new equilibrium. (3 marks) **

**e. Re-draw the graph in (b) showing and calculating the government revenue from this tax and the deadweight loss. (6 marks)**

**f. What fraction or proportion of tax is paid by consumers and producers? (2 marks) **

Part A: Definitions and Short Answers. (40 Marks).

Part A: Definitions and Short Answers. (40 Marks).

1. What do we call the magnitude of the slope of an indifference curve? (2 marks)

2. How does the production possibilities frontier illustrate production efficiency? (2 marks)

3. What is the total revenue test? Explain how it works. (2 marks)

4. What is a minimum wage and what are its effects if it is set above the equilibrium wage? (4 marks) 5.

Explain the Hotelling Principle. (3 marks)

6. Explain the four common features of all games? (4 marks)

7. How does the elasticity of demand influence the incidence of a tax, the tax revenue, and the

deadweight loss? (3 marks)

8. How do Pigovian taxes work? (3 marks)

9. What does a Lorenz curve show? (3 marks)

10. What comparison can you make about a firm operating as a perfectly competitive and as a

monopoly?

Identify at least 7 characteristics of both market structures. (14 marks)

Part B: Calculations and Graphical Analysis. (60 Marks)

1. Consider a single price monopoly that faces a market demand curve for a good is given by the

equation ? = 100?.1? and the total cost function is given as ?? = 1000 +20? +.4?2.

a. What is the total fixed cost for this monopoly? (2 marks)

b. Given that the firm is a single-price monopoly, find the firm?s profit maximizing quantity and price. (3

marks) c. Calculate the consumer surplus, producer surplus and deadweight loss. (3 marks) d. Find the

competitive price and quantity (as if the above marginal cost curve represents the market supply curve.

(3 marks)

e. Plot a graph on which you illustrate the monopoly?s profit maximizing quantity and price, the

competitive profit maximizing quantity and price and deadweight loss due to monopoly. (9 marks)

f. Calculate the profit of this single price monopoly. (3 marks)

g. Calculate the profit if it is a competitive firm. (3 marks)

h.Considering if this is a monopolistic firm; calculate the access capacity. (3 marks)

2. Tom and Jerry are both entrepreneurs and are both producing hats and scarfs. Tom is producing 1 hat

and 3 scarfs per hour whereas Jerry is currently producing 2 hats and 5 scarfs per hour. Now they want

to increase their production and export as well. They have limited labor hours to 10 hours per working

day.

a. Work out the total output per day for the entrepreneurs. (2 marks)

b. Who has the absolute advantage in producing hats and scarfs per hour? (2 marks)

c. Who has the comparative advantage in producing Hats? (2 marks)

d. Who has the comparative advantage in producing Scarfs? (2 marks)

e. As a Trade Economist who should you advice to export Scarfs and why? (2 marks)

3. Suppose the short-run market demand and supply curves for imported rice in Solomon Islands are as

follows. The price are in dollars per kg and the quantities are kilograms per day: ? = 16?0.5??

?

= 2+0.2??

a. Find the equilibrium price and quantity. (3 marks)

b. Plot the demand and supply curve and calculate the producer and consumer surplus (label your

diagram) (5 marks)

c. Calculate the price elasticity of demand and supply. (2 marks)

d. If a tax of $2 per kg is imposed on the producers, state the new demand curve equation and the new

equilibrium. (3 marks)

e. Re-draw the graph in (b) showing and calculating the government revenue from this tax and the

deadweight loss. (6 marks)

f. What fraction or proportion of tax is paid by consumers and producers? (2 marks)

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