QUESTION 1

1. Explain the importance of explicit and implicit cost. 1.5 Marks
2. Why is it important to differentiate between the short-run and long run? 1.5 Marks
3. Classify the following costs as explicit or implicit. Explain your answer

• The Global Transport Corporation spent 1 million dollar on advertising the business.
• A removalist firm spent 10000 dollars on fuel to run its business.
• The owner of Tim's bakery spends 7 hours a week cleaning his bakery.
• Rio Tinto spent 200 million on executive salaries.

0.5 * 4 = 2 Marks

QUESTION 2

1. Assume labour is the only variable input.

1. Explain with numerical examples the concept of marginal product of labour. 1.5 Mark

1. Explain how changes in the marginal product of labour affect marginal returns and marginal cost. 1.5 Marks

1. Graph and explain the relationship between marginal cost and average total cost. Using the profit equation, explain at which point in the marginal cost and average total cost relationship will profit decline. Assume ceteris paribus. 2 Marks

QUESTION 3

1. Graph and explain the demand and revenue curves of a firm with market power. 2 Marks
2. Graph and explain the difference in the demand curve of a monopoly and a monopolistic firm. 1.5 Marks
3. Explain two (2) similarities of a perfectly competitive market and a monopolistic competitive market. 1 Mark
4. Why is a perfectly competitive market structure very unlikely to exist in the real world? 1 Mark
5. Which market share most of the characteristics of a perfectly competitive market? Explain.1 Mark

QUESTION 4

1. Graph and explain the concept of an economic loss. What options does a firm has, in the short run, to minimise its economic loss? 2 Marks
2. Graphically represent normal profit and explain why normal profit is a key requirement for firms to remain in business in the long run? 1.5 Marks

QUESTION 5

1. How will you apply the concept of marginal analysis to explain and illustrate profit maximising behaviour? 2 Marks
2. Will producing a profit maximising quantity guarantee a profit? Explain. 1 Mark

QUESTION 6

1. What type of market structure are cafes in a shopping centre? Explain. 1 Mark

1. In the absence of price competition, explain four ways cafe owners can increase their chances of making an economic profit in the short run. 2 Mark

QUESTION 7

1. Explain the importance of game theory in analysing the behaviour of firms in an oligopoly market structure. 1 Mark

1. State and explain two (2) common barriers to entry in an oligopoly market structure. 1 Mark

1. Apply the game theory matrix diagram to illustrate and explain a strategic decision you have made recently. 2 Marks