# TECO101 Principles of Microeconomics

INSTRUCTIONS TO FOLLOW:
The assignment should be a professional document. Only use A4-size white paper with TYPED answers on SINGLE-SIDED pages.
Marks:
The assignment is worth 20% of the total mark for the unit. The marks awarded will depend on the quality of the reasoning exhibited and the ability to express the argument in a concise manner.
Due date:
The assignment must be submitted in hard copy by 3:00 pm Thursday, 17th May, 2018.
Late submission – it is TOP policy that assignments cannot be submitted late without prior
approval of the unit coordinator and only in extenuating circumstances supported by
evidence. Assignments submitted late without prior approval will not be graded.
Cover sheet:
Use the cover sheet provided on Moodle System. All relevant details requested on this sheet must be supplied (in particular, your subject code TECO101 and your tutor’s name). Each student must sign the statement on the cover sheet to acknowledge that the work submitted is the student’s own work.
1. your assignment is missing this cover sheet,
2. important information is missing, and
3. you did not sign the acknowledgement on the cover sheet.
A hardcopy of the WHOLE completed assignment of each question with coversheet must be submitted to your Lecturer or Tutors in the class by 3:00 pm Thursday 17-May-2018.
At the same day by 11:55pm, you MUST submit an electronic copy through TURNITIN on Moodle for checking plagiarism. Failure to submit it may result in a zero mark for the entire assessment.
You MUST ensure that all pages are securely and properly fastened with staples (not paper clips!) and submitted WITHOUT a folder. Do NOT include this document in your assignment when submitting. You MUST keep a copy of the assignment you submit.
Question 1 (25 marks)
Suppose you are a Business Analyst of a telephone company. The phone company has two plans to offer to its customers as follows:
Plan A: Phone Bill = 30 + 0.4 T and Plan B: Phone Bill = 60 + 0.2 T
Where T = time of calls in minutes
(a) Draw the graphs for the two plans in a single plane. (5 marks)
(b) Calculate how many minutes make the two plans cost the same? (8 marks)
(c) Calculate the phone bill for the call time calculated in (b) above. (4 marks)
(d) If a customer’s average call time is 250 minutes, which plan would you suggest to this customer? Explain why? (8 marks)
Question 2 (25 marks)
The schedule below shows the number of pizza bought in a Sydney suburb in each day at a various prices.
Price of Pizza (\$/Pizza)
Number of Pizza purchased / day
20
0
16
5
12
12
8
21
4
32
0
45
a) Graph the daily demand curve for pizza in the Sydney suburb. (3 mark)
b) Calculate the price elasticity of demand at a point on the demand curve where the price of pizza is \$12 per piece. (7 marks)
c) Explain the elasticity calculated in “b” above in the context of the problem and comment what kind of product pizza is. (4 mark)
d) If pizza shops decrease the price of pizza from \$12 per piece to \$8 per piece, what would happen to total revenues? Explain. (7 mark)
e) Assume current price for pizza is \$12 /piece. If you want to increase the revenue from pizza sales, what kind of pricing strategy would you take (increase price or decrease price)? Explain why? (4 marks)
Question 3 (25 marks)
You are a manager of an apple orchard. For harvesting apple, you need to hire some workers. Worker is the variable factor and per worker wage is \$40/day. Fixed cost of the orchard is \$10 per day. You have been given the following information in relation to your apple harvesting:
Workers per day
Harvesting kg per day
0
0
1
100
2
275
3
460
4
620
5
755
6
860
7
920
8
960
a) Calculate marginal cost, average total cost and average variable cost. (3 marks)
b) Graph the three curves: marginal cost, average variable cost and average total cost curves in a single plane. (3 marks)
c) If the current wholesale price for apple is \$0.30/kg, determine the profit maximisation level of output and show that on the graph. (3+1 marks)
d) Is the firm making profit or loss? Explain your answer. (3 marks)
e) Calculate the profit or loss of the firm. (4 marks)
e) If the wholesale price of apple decreases from \$0.30/kg to \$0.25/kg, then calculate the firm’s profit/loss and make comments. (4 marks)
f) Based on the answer of (e) above, decide whether the firm should continue in business or shut-down the business. Explain why? (4 marks)
Question 4 (25 marks)
In an hour, Alex can produce 50 pies or 400 cakes, and David can produce 150 pies or 300 cakes.
a) If Alex and David spend 30 minutes of each hour producing pies and 30 minutes producing cakes, how many pies and cakes does each of them produce? (4 marks)
b) Determine who has a comparative advantage in producing pies, and in producing cakes using opportunity cost? Show your workings. (10 marks)
c) If Alex and David specialise and trade, what is the highest price of a pie at which Alex and David would agree to trade pies and cakes? (6 marks)
d) Determine the gains from trade? (5 marks)
END OF ASSIGNMENT