Individual Assignment for TECO601/TECO602: Microeconomics

This assignment consists of 10 questions, 25% of full mark (or equivalent to 25 marks). This assignment should be submitted via Turnitin till 07/06/2020 at 11:59pm.

To answer the following questions, students should use a sum of relevant economic theories (if require) for the justification of their answers. Students can also use figures (i.e., supply and demand curves) for presenting their answers.

Question 1: a) Explain the profit maximisation strategy for perfectly competitive firm. (2 marks) b) A perfectly competitive firm (Top Pizza) is selling pizza in Sydney market whose marginal cost (MC), average variable cost (AVC), and average total cost curves (ATC) are shown in the diagram below,

a. Determine the profit-maximising level of output at a price of $2.50 using the above diagram. (1 mark) b. At the profit maximising level of output, calculate how much profit will this producer earn if the price of pizza is $2.50 per slice? (2 marks)

Question 2Think about the demand for the three popular laptops: ACER, ASUS and DELL. Using supply and demand diagrams, explain the effect on the demand for ACER or the quantity demanded of ACER (other things remaining the same) as a result of the following:

a) The price of an ACER rises? (1 mark) b) The prices of an ASUS and a DELL decrease? (1 mark) c) Programmers who develop operating system for ACER become more costly to hire? (1 mark) d) In Sydney market, demand for ACER is given by the equation = 30 2 and supply of ACER is given by the equation = 6 + 4. If Sydney market is in equilibrium, determine the equilibrium price (P) and quantity (Q) of an ACER and show the equilibrium condition in a graph. (3 marks) e) From the equilibrium in part d), if price of an ACER decreases to $16, what would be the quantity demanded for ACER, show this using a graph. In this case, calculate the price elasticity of demand for ACER. (3 marks)

Question 3Kim can produce 100 pies or 400 cakes an hour. Liam can produce 150 pies or 300 cakes an hour. a) If Kim and Liam spend 30 minutes of each hour producing pies and 30 minutes producing cakes, how many pies and cakes does each of them produce? (2 marks) b) Calculate opportunity cost of producing pies and cakes for Kim and Liam. (3 marks) c) Determine comparative advantage for each product and decide who should make pies and who should make cakes? Explain why. (3 marks) d) If Kim and Liam specialise and trade, what is the highest price of a pie at which Kim and Liam would agree to trade pies and cakes? What are the gains from trade? (3 marks)