Micro And Macroeconomics Questions

Short-Run Costs and Analysis

i)

Labour	Output	TFC	TVC Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	TC	AC	MC	AVC	AFC
Workers per day	T-shirts per day		$ per day			$ per day	$ per day
	0	25	0	25
	4	25	25	50	12.5	6.25	6.25	6.25
	10	25	50	75	7.5	4.17	5	2.5
	13	25	75	100	7.69	8.33	5.77	1.92
	15	25	100	125	8.33	12.5	6.67	1.67
	16	25	125	150	9.38	25	7.81	1.56

iii)

Relationship between the AC and MC curves:

One of the common features between the AC and the MC curve is that both of them are u-shaped curve due to the law of variable proportion (Mankiw, 2015). Apart from that, when MC curve is below the AC curve, the AC of the production falls. After the intersection of the two curves, both the cost curves start to increase again. However, it needs to be noted here that, after the intersection, MC increases more than AC.

Q.2

1. i) The market structure in this case is a monopoly.

Reasons for terming the store as monopoly:

1. There are no other stores in the building.
2. The customers are all the students of OPAIC and they do not have control over price.
3. The store controls the prices.
4. The product alternative is less as this store is the only seller (Goodwin et al. 2015).
5. ii) The ABS bank located in the queen street is a monopolistically competitive firm.

Reasons for terming the bank as monopolistically competitive:

1. There are a lot of other banks in that location.
2. The products and the services of each of the banks are slightly different from the others.
3. None of the banks enjoys more power than the other.
4. Neither the buyers nor the seller of the market has control over the prices of the products of the banks.

iii) The Auckland airport is a monopoly

Reasons:

1. There is only one airport in the locality.
2. Entry is blocked due to high capital investment (Cosgrove & Olitsky, 2015).
3. The price of the service is controlled by the airport.
4. The passengers have no control over the price of service.
5. iv) Features of perfectly competitive market:
6. Huge number of buyers and sellers who are price takers.
7. Homogeneous goods or services (Leeds & Von Allmen, 2016).
8. No barrier to entry and exit.
9. Perfect knowledge about the market.
10. Q.3

1. i)

If the price is $60 it intersects the MC curve where Q is 7.5. It is advised Chris to continue the operation at the price level in order to make profit.

1. ii) At price $30 P= ATC and hence it earns a normal profit. Therefore it is suggested to continue the operation of the business.

iii) At price $20, P= Min AVC, which earns less than normal profit. However, as long as the price is more than AVC it is advised to stay in the business.

Q.4

	Auckland to wellington	Auckland to Christchurch	Auckland to Blenheim	Auckland to Gisborne
Air NZ	95	116	148	148
Jet Star airways	87	76

The air NZ is competitive when there is a rival in case of Wellington and Christchurch.

Section –B 

Q. 1

1. a)

• Marginal benefit = Marginal cost
• Price = Marginal cost
• Maximised social surplus
• Free market
• Supply= Demand

1. b)

Objective of free tertiary education:

• Make use of the positive externality (Sahlins, 2017)
• Free education will have repercussions in other parts of the economy.
• Awareness about the provision of the public goods will improve.

The government has compelled the production unit to internalise the externality (Bober, 2016). The MSC is above MC due to the fact that MSC includes the social cost along with the private cost.

Q.3

Ban foreign buyers from certain countries to purchase NZ property:

This is done for the equitable purpose so that local residents can enjoy low prices.

Increase the minimum wage to $20 by 2020:

The market efficiency in that case makes the worker worse off and hence done for equity.

Section-C Q. 1

Scenario	Part of the circular flow model (a – l)
Garry pays $250 for a new jacket	c
Mary decides to save $150 from her wages	a
The government provides a $50,000 subsidy for doctor’s visits	g
A New Zealand kiwifruit grower developed a new variety of kiwifruit. This specific type of kiwifruit becomes very popular in Australia.	k
The Smith family takes out a mortgage to purchase a new family home	a
Stuart earns $10,000 from his 10% ownership of Acme industrial	j
Wendy pay $ 290 personal income every week	d
Each financial year, ABC Ltd pay around $ 220,000  to the government for taxation	f

Q.2

1. a)

Injections > leakages : National income increases (Onodipe, Ayadi & Marquez, 2016)

1. b) Injections = leakages : National income remains the same
2. c) Injections < leakages: National income reduces
3. Q.3

CPI measures the change in the prices of products over a specified period of time.

CPI for 2017

= (110000/45000)*100 = 244.44

Q.4

1. a)

400+100+50+(200-95) = $655m

b)

Economic growth

((655-640)/640)*100= 2.3%

1. c)

The nominal GDP is dependent on the population of the economy hence does not bring out the accurate performance of the economy (Komlos, 2016). A better measure would be to use per-capita nominal GDP in order to nullify the influence of population in the economy.

Reference

Bober, S. (2016). Alternative principles of economics. Routledge.

Cosgrove, S. B., & Olitsky, N. H. (2015). Knowledge retention, student learning, and blended course work: Evidence from principles of economics courses. Southern Economic Journal, 82(2), 556-579.

Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Principles of economics in context. Routledge.

Komlos, J. (2016). Principles of economics for a post-meltdown world. Springer.

Leeds, M. A., & Von Allmen, P. (2016). The Economics of Sports: International Edition. Routledge.

Mankiw, N. G. (2015). Ten principles of economics. Principles of Economics, 3-18.

Onodipe, G., Ayadi, M. F., & Marquez, R. (2016). The efficient design of an online course: Principles of economics. Journal of Economics and Economic Education Research, 17(1), 39.

Sahlins, M. (2017). Stone age economics. Routledge.