Economics of Enterprise Answers

Which of the following is an assumption under which the production possibilities frontier is drawn? (4 marks)

a) Total unemployment is zero.

b) The supply of resources is fixed.

c) The price level is changing.

d) Technology is changing

Which of the following goods will have the lowest price elasticity of demand? (4 marks)

a) Castle Lite beer

b) Light beer

c) Beer

d) Alcoholic drinks 

An increase in the population that is unemployed is best represented in Figure 1.2 and using PP1 by movement from point

Which of the following goods will have the lowest price elasticity of demand? (4 marks)

a) Castle Lite beer

b) Light beer

c) Beer

d) Alcoholic drinks

What is the fundamental problem in economics

China is the world’s largest producer of gold and India is the world’s largest buyer of gold. Gold mining in China is becoming more capital-intensive which is making the supply of gold less price inelastic. The wages of workers employed in the industry are rising but other costs of production are falling.

         (a.)           Explain two reasons why the supply of a product may be price inelastic.

(b.) Analyse what effect an increase in output will have on fixed, variable and average costs.                                                    

Q1: The production process in the oil industry is capital-intensive. The pollution it generates means it is one cause of environmental market failure. The Nigerian government intends to split the monopoly firm into separate companies to improve efficiency.

(a)           Identify two features of a capital-intensive production process.                  

(b)     Discuss whether or not removing a firm’s monopoly power will benefit consumers.                                  

F.2. Assume that 362 years ago Peter Minuit, governor of the Dutch West India Company, bought Manhattan Island from the Indians for $24 worth of beads, cloth, and trinkets.

(a) If the Indians had insisted on $24 cash and invested the $24 at 6 percent, what would be compounded amount be worth now?

(b) If the compounding were continuous instead of annual, how much would the $24 investment be worth now?

(c) Assume the actual value of Manhattan Island, land only (no improvements), is estimated to be 28 billion. What is the average percent increase in value with the annual compounding each year?

8.2 Graphically express what effect will each of the following have on the supply of auto tires?

I. A technological advance in the methods of producing tires.

II.An increase in the prices of rubber used in the production of tires. 

III.The levying of a per-unit tax on each auto tire sold.

IV.The granting of a 50-cent-per-unit subsidy for each auto tire produced. (1*4=4 marks) 

1.     Fill the table below and draw MC, ATC, AVC and AFC curves. (4*2= 8marks) 

Output Fixed Cost  Total cost ATC AVC AF MC 

0  12  24 

 1  12  33 

 2  12  41 

 3  12  48 

 4  12  54 

5  12  61