Loading....
|
Press & Hold to Drag Around |
|||
|
Click Here to Close |
|||
Question 1 Report
Table 2 below show the unit prices and quantities of hats produced by a firm
Study it and answer the questions that follows
| Quantity | Unit Price (S) | Total Revenue (S) | Marginal Revenue (S) | Average Revenue (S) |
| 10 | 180 | 1800 | - | 180 |
| 20 | 150 | 3000 | 120 | X |
| 30 | U | 3600 | 60 | 120 |
| 40 | 100 | V | W | Y |
| 50 | 80 | 4000 | 0 | 80 |
| 60 | 60 | 3600 | 40 | 60 |
a) Compute the values of U, V, W, X and Y
b) In what type of market is the firm operating? Explain your answer
c) If the firm's marginal cost is $60.00 at all levels of output, at what level of output will it be in equilibrium? Explain your answer
d) If a total cos of $600,00 is incurred when 50 units of hats are produced. Determine the margin of profit or loss made.
e) What is another name for marginal cost?
(a) The missing values (using \(AR = \dfrac{TR}{Q}\), \(TR = P\times Q\), \(MR = \dfrac{\Delta TR}{\Delta Q}\))
| Quantity | Price/AR ($) | TR ($) | MR ($) |
|---|---|---|---|
| 20 | 150 (X) | 3000 | 120 |
| 30 | 120 (U) | 3600 | 60 |
| 40 | 100 (Y) | 4000 (V) | 40 (W) |
(b) Type of market
The firm operates in an imperfect market (monopoly). The unit price (average revenue) falls as output rises, and marginal revenue is below average revenue at every level. A firm facing a downward-sloping demand/AR curve with MR < AR is a price-searcher, not a perfectly competitive price-taker.
(c) Equilibrium output
A firm is in equilibrium where \(MR = MC\). Since \(MC = \$60\) at all outputs, equilibrium is where \(MR = \$60\), which occurs at Q = 30 units. Producing beyond this, MR falls below MC, so additional units subtract from profit.
(d) Margin of profit or loss at 50 units
At 50 units, \(TR = \$4000\). Taking the stated total cost as \$6,000:
\[\text{Profit} = TR - TC = 4000 - 6000 = -\$2000\]
The firm makes a loss of \$2,000.
(e) Another name for marginal cost
Incremental cost (the extra/additional cost of producing one more unit).
Answer Details
(a) The missing values (using \(AR = \dfrac{TR}{Q}\), \(TR = P\times Q\), \(MR = \dfrac{\Delta TR}{\Delta Q}\))
| Quantity | Price/AR ($) | TR ($) | MR ($) |
|---|---|---|---|
| 20 | 150 (X) | 3000 | 120 |
| 30 | 120 (U) | 3600 | 60 |
| 40 | 100 (Y) | 4000 (V) | 40 (W) |
(b) Type of market
The firm operates in an imperfect market (monopoly). The unit price (average revenue) falls as output rises, and marginal revenue is below average revenue at every level. A firm facing a downward-sloping demand/AR curve with MR < AR is a price-searcher, not a perfectly competitive price-taker.
(c) Equilibrium output
A firm is in equilibrium where \(MR = MC\). Since \(MC = \$60\) at all outputs, equilibrium is where \(MR = \$60\), which occurs at Q = 30 units. Producing beyond this, MR falls below MC, so additional units subtract from profit.
(d) Margin of profit or loss at 50 units
At 50 units, \(TR = \$4000\). Taking the stated total cost as \$6,000:
\[\text{Profit} = TR - TC = 4000 - 6000 = -\$2000\]
The firm makes a loss of \$2,000.
(e) Another name for marginal cost
Incremental cost (the extra/additional cost of producing one more unit).
Question 2 Report
(a) Distinguish between domestic trade and external trade.
(b) Distinguish between terms of trade and balance of trade
(c) Outline four causes of balance of payments deficit in a country
(a) Domestic trade versus external trade. Domestic (internal) trade is the buying and selling of goods and services within the boundaries of a single country, using one common currency and one set of laws. External (international/foreign) trade is trade between different countries, involving different currencies, customs duties, exchange-rate problems and different commercial laws. External trade is further divided into import, export and entrepot trade.
(b) Terms of trade versus balance of trade. Terms of trade measure the rate at which a country's exports exchange for its imports, expressed as an index: \( \text{Terms of trade} = \dfrac{\text{index of export prices}}{\text{index of import prices}} \times 100 \). It shows whether export earning power is improving. Balance of trade is the difference in value between a country's visible exports and visible imports of goods over a period; a surplus (favourable) means visible exports exceed visible imports, a deficit means the reverse.
(c) Four causes of a balance of payments deficit.
Examination reminder: do not confuse balance of trade (visibles only) with balance of payments (all transactions, visible and invisible, plus capital).
Answer Details
(a) Domestic trade versus external trade. Domestic (internal) trade is the buying and selling of goods and services within the boundaries of a single country, using one common currency and one set of laws. External (international/foreign) trade is trade between different countries, involving different currencies, customs duties, exchange-rate problems and different commercial laws. External trade is further divided into import, export and entrepot trade.
(b) Terms of trade versus balance of trade. Terms of trade measure the rate at which a country's exports exchange for its imports, expressed as an index: \( \text{Terms of trade} = \dfrac{\text{index of export prices}}{\text{index of import prices}} \times 100 \). It shows whether export earning power is improving. Balance of trade is the difference in value between a country's visible exports and visible imports of goods over a period; a surplus (favourable) means visible exports exceed visible imports, a deficit means the reverse.
(c) Four causes of a balance of payments deficit.
Examination reminder: do not confuse balance of trade (visibles only) with balance of payments (all transactions, visible and invisible, plus capital).
Question 3 Report
(a) What Is economies of scale?
(b) Outline three internal economics of scale a firm can enjoy
(c) State three factors that can influence where a firm is sited.
(a) Economies of scale. These are the cost advantages, seen as a fall in the long-run average (unit) cost of production, that a firm enjoys as it expands its scale of output. As output rises, total cost is spread over more units and specialised resources are used more efficiently, so cost per unit falls.
(b) Three internal economies of scale. (These arise from the growth of the individual firm itself.)
(c) Three factors that influence where a firm is sited (location factors).
Examination reminder: keep internal economies (from the firm's own growth) distinct from external economies (from growth of the whole industry).
Answer Details
(a) Economies of scale. These are the cost advantages, seen as a fall in the long-run average (unit) cost of production, that a firm enjoys as it expands its scale of output. As output rises, total cost is spread over more units and specialised resources are used more efficiently, so cost per unit falls.
(b) Three internal economies of scale. (These arise from the growth of the individual firm itself.)
(c) Three factors that influence where a firm is sited (location factors).
Examination reminder: keep internal economies (from the firm's own growth) distinct from external economies (from growth of the whole industry).
Question 4 Report
(a) Define product retailing
(b) Outline any three roles performed by the wholesaler to the manufacturer
(C) ldentify any three problems associated with distribution ol products
(a) Product retailing. Retailing is the final stage in the chain of distribution in which goods are sold in small quantities directly to the final consumer for personal use. The retailer buys from the wholesaler (or producer) and breaks bulk to serve individual buyers.
(b) Three roles of the wholesaler to the manufacturer.
(c) Three problems associated with distribution of products.
Examination reminder: address the roles specifically to the manufacturer (not the consumer), since the question fixes the audience.
Answer Details
(a) Product retailing. Retailing is the final stage in the chain of distribution in which goods are sold in small quantities directly to the final consumer for personal use. The retailer buys from the wholesaler (or producer) and breaks bulk to serve individual buyers.
(b) Three roles of the wholesaler to the manufacturer.
(c) Three problems associated with distribution of products.
Examination reminder: address the roles specifically to the manufacturer (not the consumer), since the question fixes the audience.
Question 5 Report
(a) Define price elasticity of demand
(b) Distinguish between elastic demand and Inelastic demand
(C) Using diagrams. explain what happens to a traders total revenue demand for his product is:
(i) elastic
(ii) inelastic
(a) Price elasticity of demand (PED). It is the degree of responsiveness of the quantity demanded of a good to a change in its price. It is measured as \( PED = \dfrac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}} \).
(b) Elastic versus inelastic demand.
| Elastic demand (PED > 1) | Inelastic demand (PED < 1) |
|---|---|
| Quantity demanded changes by a larger proportion than price | Quantity demanded changes by a smaller proportion than price |
| Typical of luxuries and goods with many substitutes | Typical of necessities and goods with few substitutes |
| A price rise reduces total revenue | A price rise increases total revenue |
(c) Effect on a trader's total revenue. Recall \( TR = P \times Q \).
(i) When demand is elastic: a fall in price causes a more than proportionate rise in quantity demanded, so total revenue rises; a rise in price causes a more than proportionate fall in quantity, so total revenue falls. Price and total revenue move in opposite directions. On a diagram, plot a gently sloping (flat) demand curve; cutting price from \( P_1 \) to \( P_2 \) enlarges the revenue rectangle \( P \times Q \).
(ii) When demand is inelastic: a rise in price causes only a less than proportionate fall in quantity, so total revenue rises; a fall in price causes total revenue to fall. Price and total revenue move in the same direction. On a diagram, draw a steep demand curve; raising price from \( P_1 \) to \( P_2 \) enlarges the revenue rectangle.
Examination reminder: to raise revenue, cut price when demand is elastic but raise price when demand is inelastic.
Answer Details
(a) Price elasticity of demand (PED). It is the degree of responsiveness of the quantity demanded of a good to a change in its price. It is measured as \( PED = \dfrac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}} \).
(b) Elastic versus inelastic demand.
| Elastic demand (PED > 1) | Inelastic demand (PED < 1) |
|---|---|
| Quantity demanded changes by a larger proportion than price | Quantity demanded changes by a smaller proportion than price |
| Typical of luxuries and goods with many substitutes | Typical of necessities and goods with few substitutes |
| A price rise reduces total revenue | A price rise increases total revenue |
(c) Effect on a trader's total revenue. Recall \( TR = P \times Q \).
(i) When demand is elastic: a fall in price causes a more than proportionate rise in quantity demanded, so total revenue rises; a rise in price causes a more than proportionate fall in quantity, so total revenue falls. Price and total revenue move in opposite directions. On a diagram, plot a gently sloping (flat) demand curve; cutting price from \( P_1 \) to \( P_2 \) enlarges the revenue rectangle \( P \times Q \).
(ii) When demand is inelastic: a rise in price causes only a less than proportionate fall in quantity, so total revenue rises; a fall in price causes total revenue to fall. Price and total revenue move in the same direction. On a diagram, draw a steep demand curve; raising price from \( P_1 \) to \( P_2 \) enlarges the revenue rectangle.
Examination reminder: to raise revenue, cut price when demand is elastic but raise price when demand is inelastic.
Question 6 Report
(a) Explain how the Central Bank controls money supply through the use of: (i) open market operation (ii) bank rate.
(b) Outline four functions performed by the Central Bank of your country.
(a) Control of money supply by the Central Bank.
(i) Open Market Operation (OMO). This is the deliberate buying and selling of government securities (treasury bills and bonds) in the open market by the Central Bank to alter the amount of money in circulation. To reduce the money supply, the Bank sells securities; the public and commercial banks pay for them, so cash is withdrawn from the banking system and banks' ability to create credit falls. To increase the money supply, the Bank buys back securities, injecting cash into the system and expanding credit.
(ii) Bank rate (discount rate). This is the rate of interest at which the Central Bank lends to commercial banks as lender of last resort. To contract the money supply, the Bank raises the bank rate; commercial banks then raise their own lending rates, borrowing becomes dearer, loans fall and the money supply contracts. To expand the money supply, the Bank lowers the bank rate, making credit cheaper and encouraging borrowing.
(b) Four functions of the Central Bank of Nigeria.
Examination reminder: link each instrument to its direction: selling securities and raising the bank rate both reduce money supply; buying securities and cutting the rate both increase it.
Answer Details
(a) Control of money supply by the Central Bank.
(i) Open Market Operation (OMO). This is the deliberate buying and selling of government securities (treasury bills and bonds) in the open market by the Central Bank to alter the amount of money in circulation. To reduce the money supply, the Bank sells securities; the public and commercial banks pay for them, so cash is withdrawn from the banking system and banks' ability to create credit falls. To increase the money supply, the Bank buys back securities, injecting cash into the system and expanding credit.
(ii) Bank rate (discount rate). This is the rate of interest at which the Central Bank lends to commercial banks as lender of last resort. To contract the money supply, the Bank raises the bank rate; commercial banks then raise their own lending rates, borrowing becomes dearer, loans fall and the money supply contracts. To expand the money supply, the Bank lowers the bank rate, making credit cheaper and encouraging borrowing.
(b) Four functions of the Central Bank of Nigeria.
Examination reminder: link each instrument to its direction: selling securities and raising the bank rate both reduce money supply; buying securities and cutting the rate both increase it.
Question 7 Report
(a) Stale three characteristics of perfect competition,
(b) With the aid of diagrams, explain equilibrium positions of a perfectly competitive firm in the: (i) short-run: (ii) long-run
(a) Three characteristics of perfect competition.
(b) Equilibrium of a perfectly competitive firm. In every case the firm maximises profit where marginal cost equals marginal revenue, \( MC = MR \), with MC cutting MR from below. Because the firm is a price taker, \( P = AR = MR \) and the demand curve is a horizontal line at the market price.
(i) Short run. The firm produces where \( MC = MR = P \). At this output the firm may earn supernormal profit (if \( P > AC \)), normal profit (if \( P = AC \)), or a loss (if \( P < AC \)). It continues in the short run so long as price at least covers average variable cost. Diagram: a horizontal demand line \( P = AR = MR \) cutting a U-shaped MC curve; the gap between price and AC at the equilibrium output shows profit or loss.
(ii) Long run. Supernormal profits attract new firms (free entry), which raises supply and lowers price, while losses drive firms out until price rises. Adjustment stops when each firm earns only normal profit, so long-run equilibrium is where \( P = AR = MR = MC = AC \) at the minimum point of the average cost curve. Diagram: the horizontal demand line is tangent to the lowest point of the AC curve, with MC passing through that point.
Examination reminder: stress that only normal profit survives in the long run because free entry and exit compete away any supernormal profit.
Answer Details
(a) Three characteristics of perfect competition.
(b) Equilibrium of a perfectly competitive firm. In every case the firm maximises profit where marginal cost equals marginal revenue, \( MC = MR \), with MC cutting MR from below. Because the firm is a price taker, \( P = AR = MR \) and the demand curve is a horizontal line at the market price.
(i) Short run. The firm produces where \( MC = MR = P \). At this output the firm may earn supernormal profit (if \( P > AC \)), normal profit (if \( P = AC \)), or a loss (if \( P < AC \)). It continues in the short run so long as price at least covers average variable cost. Diagram: a horizontal demand line \( P = AR = MR \) cutting a U-shaped MC curve; the gap between price and AC at the equilibrium output shows profit or loss.
(ii) Long run. Supernormal profits attract new firms (free entry), which raises supply and lowers price, while losses drive firms out until price rises. Adjustment stops when each firm earns only normal profit, so long-run equilibrium is where \( P = AR = MR = MC = AC \) at the minimum point of the average cost curve. Diagram: the horizontal demand line is tangent to the lowest point of the AC curve, with MC passing through that point.
Examination reminder: stress that only normal profit survives in the long run because free entry and exit compete away any supernormal profit.
Question 8 Report
Table 1 below shows the distribution of the population of a country in various occupations.
Study it and answer the questions that follow.
| OCCUPATION | TOTAL |
| Shoe Production | 30 million |
| Banking | 37 million |
| Fish Processing | 19 million |
| Warehousing | 12.2 million |
| Mining | 16.1 million |
| Fish Farming | 10.8 million |
| Food Crop Production | 15.6 million |
| Baking | 19 million |
| Laundry | 10.3 million |
a) Calculate the size of the entire labour force in the country
b) What percentage of the labour force is engaged in the
(i) Primary sector
(ii) Secondary sector
(iii) Tertiary sector
c) Calculate the ratio of the workers in mining to the workers in shoe production
d) Calculate the percentage of the people engaged in warehousing
e) (i) Identify the type of economy depicted in the table
(ii) Give a reason for your answer in (e)(i)
Sector classification of the occupations
| Sector | Occupations | Labour (million) |
|---|---|---|
| Primary | Mining, Fish Farming, Food Crop Production | 16.1 + 10.8 + 15.6 = 42.5 |
| Secondary | Shoe Production, Fish Processing, Baking | 30 + 19 + 19 = 68.0 |
| Tertiary | Banking, Warehousing, Laundry | 37 + 12.2 + 10.3 = 59.5 |
(a) Size of the entire labour force
Add every occupation: \(30 + 37 + 19 + 12.2 + 16.1 + 10.8 + 15.6 + 19 + 10.3 = 170\) million.
The labour force = 170 million workers.
(b) Percentage in each sector (each sector total divided by 170, times 100)
(c) Ratio of mining workers to shoe-production workers
\(16.1 : 30 = 161 : 300\) (multiplying both by 10). Since 161 and 300 share no common factor, the ratio is 161 : 300.
(d) Percentage engaged in warehousing
\(\dfrac{12.2}{170}\times 100 = 7.18\%\) (approximately).
(e) Type of economy
(i) It is an industrialised (developed) mixed economy.
(ii) Reason: only 25% of the labour force is in primary (extractive/agricultural) production, while 75% is engaged in secondary and tertiary activities. A small primary share with large manufacturing and service sectors is the mark of an industrialised economy rather than a subsistence agrarian one.
Answer Details
Sector classification of the occupations
| Sector | Occupations | Labour (million) |
|---|---|---|
| Primary | Mining, Fish Farming, Food Crop Production | 16.1 + 10.8 + 15.6 = 42.5 |
| Secondary | Shoe Production, Fish Processing, Baking | 30 + 19 + 19 = 68.0 |
| Tertiary | Banking, Warehousing, Laundry | 37 + 12.2 + 10.3 = 59.5 |
(a) Size of the entire labour force
Add every occupation: \(30 + 37 + 19 + 12.2 + 16.1 + 10.8 + 15.6 + 19 + 10.3 = 170\) million.
The labour force = 170 million workers.
(b) Percentage in each sector (each sector total divided by 170, times 100)
(c) Ratio of mining workers to shoe-production workers
\(16.1 : 30 = 161 : 300\) (multiplying both by 10). Since 161 and 300 share no common factor, the ratio is 161 : 300.
(d) Percentage engaged in warehousing
\(\dfrac{12.2}{170}\times 100 = 7.18\%\) (approximately).
(e) Type of economy
(i) It is an industrialised (developed) mixed economy.
(ii) Reason: only 25% of the labour force is in primary (extractive/agricultural) production, while 75% is engaged in secondary and tertiary activities. A small primary share with large manufacturing and service sectors is the mark of an industrialised economy rather than a subsistence agrarian one.
Would you like to proceed with this action?