Economics of Enterprise Answers

name 4 factors of production

Vibhash, a Surat based garment manufacturing plant has been operating for ten periods. The output

rate (in tonnes) and the total cost for each period are shown here. (20 marks)

Period Output Total Cost Period Output Total Cost

1 4 13 lacs 6 11 19 lacs

2 12 17 lacs 7 6 12.5 lacs

3 21 44 lacs 8 27 95 lacs

4 16 29 lacs 9 19 35.5 lacs

5 30 105 lacs 10 8 14 lacs

a. Use excel to find the cubic total cost function.

b. Use the estimated total cost function to derive equations for average cost and marginal cost.

c. Using the same data, compute average costs for each of the ten periods. Using the computed

average cost data, estimate the quadratic average cost function.

2. Kapoor Denims Inc. manufactures denim fabric. 20 metres of the fabric is sold at Rs 8000. Fixed costs

is Rs 20 lacs per production period and the profit contribution is 40 percent of price. (20 marks)

a. Determine the BEP.

b. Determine the Profit/loss at output of 8,000, 10,000 and 15,000 units.

c. For the next production period, fixed costs will increase to 30 lacs due to a major capital

investment programme, but the new and more efficient machinery will result in a lower variable

production cost so that variable cost per metre will be reduced by 40 percent. If price is unchanged, re-

compute the profit /loss at output rate of 8,000, 10,000 and 15,000 units

Anuradha Sharma, a start up entrepreneur from Bareilly, has invested Rs 80 lacs in an apparel retail

store. Business has been good, and the store shows an accounting profit of Rs 10 lacs for the last year.

This profit is after taxes and after payment of a Rs 20 lacs salary to Ms. Sharma. This salary is less than

what she could make at another job, which is about equal to Rs 40 lacs. Considering the risk involved in

the fashion retail business post Covid’19, she believes that a 15 percent after-tax rate of return is

appropriate for this type of investment. (20 marks)

a. Given this information, calculate the economic profit earned by Ms Sharma.

b. What accounting profit would the firm have to earn in order for the firm to break even in term

of economic profit?

a competitive firm is referred to as a

A price giver

B price taker

C price maker

D price cutter

E price setter

The fundamental problem in economics is... (4 marks)

a) The law of increasing opportunity cost.

b) The scarcity of resources relative to human wants.

c) How to get the government to operate efficiently.

d) How to create employment for everyone.

What is the most economic problem

What is explicit cost

Which one of the following is a microeconomic issue?

1. The rate of economic growth in Japan.
2. The South African inflation rate.
3. The price of maize in Lesotho.
4. The unemployment rate in Zimbabwe.
5. The total production of goods and services in Zambia.

2. Kapoor Denims Inc. manufactures denim fabric. 20 metres

of the fabric is sold at Rs 8000. Fixed costs is Rs 20 lacs per

production period and the profit contribution is 40 percent of

price. (20 marks)

a.

Determine the BEP.

b.

Determine the Profit/loss at output of 8,000, 10,000

and 15,000 units.

C.

For the next production period, fixed costs will

increase to 30 lacs due to a major capital investment

programme, but the new and more efficient machinery will

result in a lower variable production cost so that variable cost

per metre will be reduced by 40 percent. If price is

unchanged, re-compute the profit /loss at output rate of 8,000,

10,000 and 15,000 units