Suppose that the production function for compact disc player is Q = 100L0.6 K0.4 Where Q is the total output, L is the quantity of labor employed, and K is the quantity of capital in place. a) Calculate TP, AP, and MP for the sixth, seventh and eighth units of labour employed if capital is fixed at 240 units. [6] b) To which stage of production do these quantities of labor correspond? Why? [4] Question 1 (ii) a) What are the accounting costs of your university education? What are the economic costs? How do they compare? [4] b) Explain why the short-run MC is equal to the slope of both the TC and TVC curves. [6] Question Three (30 Marks) 3. (a) If the market demand for agricultural commodities is price-inelastic, would a bad harvest lead to an increase or a decrease in the incomes of farmers as a group? Why? [5] (b) Identify the type of price control that governments can impose on the price of fuel to control the sustained price increases. With the aid of a diagram, critically discuss the economic effects of the imposition of such a price control. [15] (c) Suppose the demand for fuel is instead perfectly inelastic. What would be the effect, if any, of fuel price controls? [5] (d) Explain why for many goods, the long-run price elasticity of supply is larger than the short- run elasticity. [5] (c) Suppose the demand for fuel is instead perfectly inelastic. What would be the effect, if any, of fuel price controls? [5] (d) Explain why for many goods, the long-run price elasticity of supply is larger than the short- run elasticity. [5] Question Four (30 Marks) 4.(a) (i)Suppose you have two goods, X and Y, show the income, substitution and total effects of a decrease in the Price of good Y when Y is a Giffen good. Draw the corresponding demand curve for Good Y in the lower graph. [10] (ii) In your answer, explain how you derived the demand curve for good Y. [10] (b) Suppose the demand curve for a product is given by Q = 300 - 2P+ 41, where I is average income measured in thousands of Emalangeni. The supply curve is Q = 3P - 50. If I = 25, find the market-clearing price and quantity for the product. [10] Question 5 Suppose that you wake up tomorrow to discover that you have 12 hours of study time in which to prepare for three exams. For each hour of study you can expect your marks to be as given in the accompanying table. You want to allocate your time to maximize your total numerical score on all three exams. (Each is weighted equally on your final result). Hour 1 found 2 3 4 5 6 7 8 9 10 Exam A 40 65 80 90 95 99 100 100 99 95 Exam B 60 90 100 100 90 75 55 33 8 0 Exam C 39 46 60 72 82 90 96 100 100 100 a) Calculate the marginal product (score) of each hour of study for each exam. b) State briefly the meaning of negative marginal product in this example. c) State a general rule for dividing your time to maximize the total score on all three exams. How many hours should be devoted to the preparation of exams A, B and C? [5] [12] [3] d) Explain why the short-run MC is equal to the slope of both the TC and TVC curves. [6] e) How is the law of diminishing returns marginal returns related to the shape of the short- run marginal cost curve? [4] 11 Question 6 a) Explain the concept of returns to scale [6] b) Consider the production function given by, Q = 5L + 10K, is it characterized by constant, increasing or decreasing returns to scale? Why? [2] c) Given the production function above find the marginal rate of technical substitution of capital for labor. [12] d) How do external economies and diseconomies of scale affect the firms long-run marginal cost curve? Why? [5] e) Weakbeer and Co. produces bottled lager. The company faces the following total cost function: TC = 300 +30 + 0.02Q Where TC is total cost in Emalangeni and Q is the number of bottles of lager produced. What is the corresponding TFC function? The AFC function? The TVC function? The AVC function? Plot these curves as well as MC cure for the first six bottles produced. [5]