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BUSI 1083: MICROECONOMICS

ASSESSMENTS

TABLE OF CONTENTS
Assignment #1 Questions..............................................................................................................................................................2
Assignment #2 Questions..............................................................................................................................................................4
Assignment #3 Questions..............................................................................................................................................................7
Assignment #4 Questions..............................................................................................................................................................9

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ASSIGNMENT #1 QUESTIONS
 Due no later than 11:00 p.m. on Sunday of Unit 2
 Weight 2.5% of the final grade
Late Submission Policy
 This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
 This page will close and will not allow further submissions after this Late Submission period has
expired.
 In the event of an emergency that prevents you from submitting within this time frame, special
permission must be obtained from your instructor. Documentation substantiating the emergency
is required. If the extension is granted, the professor will reopen the submission function for you
on an individual basis.
 Do not email your submissions to your professor, either before or after the due date. All
coursework should be submitted through the online course (Moodle) only.

Description
Students are to complete assignments in Word (or some other compatible word processor; no PDF) and
apply economic concepts learned in this course to the answers submitted for evaluation. Do not submit
more than ONE document for your assignment.
1. Diagrams 1 and 2 below depict the production possibility frontier (PPF) for Patsy’s Snack Shop.
Answer the questions below and show all calculations where appropriate.

Diagram 1 Diagram 2

a. Explain in one paragraph how Diagram 1 depicts the problem of scarcity for Patsy’s Snack shop.
b. By referring to points or values in Diagram 1, explain how the PPF illustrates production efficiency for
Patsy’s Snack Shop.
c. “Every point on the PPF in Diagram 1 involves a trade-off.” Explain this by comparing a set of related
changes in values on the diagram.

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d. In Diagram 1, calculate the opportunity cost of increasing the production of cakes from 8 to 12 with
the opportunity cost of increasing the production of cakes from 14 to 16. Show all calculations.
e. Why is the opportunity cost of making an extra cake not the same in the two situations describe in
(d) above?
f. In Diagram 2, how would explain the shift from PPF 1 to PPF2 at Patsy’s Snack Shop using economic
theory?
(35 points)

2. The McStevens Fruit Farm produces only oranges and papaya. Table 1 below shows the maximum
possible output combinations of the two fruits using all resources and currently available
technology.

Table 1

McStevens Fruit Farm

Oranges Papayas
Possible Output
Combinations (thousands of (thousands of
kilos) kilos)
A 140 0
B 120 20
C 100 38
D 80 52
E 60 64
F 40 74
G 20 80
H 0 82

a. Graph the Fruit Farm's production possibilities frontier. Put oranges on the horizontal axis
and papayas on the vertical axis. Be sure to identify the output combination points on your
diagram.
b. Suppose the Fruit Farm is currently producing at point C. What is the opportunity cost of
producing an additional 14,000 kilos of papayas?
c. Suppose the Fruit Farm is currently producing at point C. What happens to the opportunity
cost of producing more and more papayas? Does it increase, decrease or remain constant?
Explain your answer.
d. Suppose the Fruit Farm is currently producing at point F. What happens to the opportunity
cost of producing more and more oranges? Does it increase, decrease or remain constant?
Explain your answer.
e. Suppose the Fruit Farm is plagued by a maggot infestation which destroys orange trees but
not papayas. Explain with a graph what happens to the PPF.
(35 points)

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3. The following table shows the amount of good A and good B that two countries could produce if
they devoted all their resources to that good. Assume both countries have the same amount of
resources and the trade-off between good A and good B remains constant as resources are shifted
from one good to another. (30 points)

Canada India
Good A 400 300
Good B 950 500

a. Which country has the absolute advantage in good A? In good B?

b. What is Canada’s marginal opportunity cost of producing good A? good B?
c. What is India’s marginal opportunity cost of producing good A? good B?
d. Which country has the comparative advantage in good A? In good B?
e. Based on the data given, what is the terms of trade range for good A in terms of units of
good B?
(30 points)

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ASSIGNMENT #2 QUESTIONS
 Due no later than 11:00 p.m. on Sunday of Unit 4
 Weight 2.5% of the final grade
Late Submission Policy
 This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
 This page will close and will not allow further submissions after this Late Submission period has
expired.
 In the event of an emergency that prevents you from submitting within this time frame, special
permission must be obtained from your instructor. Documentation substantiating the emergency
is required. If the extension is granted, the professor will reopen the submission function for you
on an individual basis.
 Do not email your submissions to your professor, either before or after the due date. All
coursework should be submitted through the online course (Moodle) only.

Description
Students are to complete assignments in Word (or some other compatible word processor; no PDF) and
apply economic concepts learned in this course to the answers submitted for evaluation. Do not submit
more than ONE document for your assignment.
1. John was discussing the market for cocoa beans with his friend Kim. John said, "Ever since Venezuela
announced that its cocoa harvest was its lowest ever in fifteen years, the price of cocoa beans has
been rising and rising and people are buying more and more. I think the demand for cocoa beans
must be upward sloping." Is John’s reasoning correct? Explain why or why not.
(10 points)

2. Assume Diagram 1 below represents a competitive market.

Diagram 1

8
S
6
Price (dollars)

5 10 15 20 25 Quantity

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a. What is the overall market situation at a price of $5?

b. What changes in supply and/or demand would cause the equilibrium market price to fall to $2
(list all possibilities)?
c. If the government imposed a price ceiling of $3 per unit, how does this change the market
situation?
d. Suppose the product represented in the graph is a gallon of regular milk. If this were soy milk
instead, how do you think the demand curve in this case would change? Explain.
(30 points)

3. According to the Australian Wool Innovation, severe drought conditions in Australia contributed to
the lowest level of wool production in 50 years. This record low production has driven up prices
sharply in Australian wool markets. Meanwhile, the price of raw cotton increased significantly for
the first time in many years.
a. Illustrate this observation with a single supply-demand graph for the Australian wool market
and a corresponding single supply-demand for the raw cotton market.
b. Indicate on your graph (1) the initial equilibrium before the decrease in the supply of
Australian wool and (2) the final equilibrium.
c. Using arrows on the graphs, indicate any shifts in the demand and supply curves for each
market.
d. Label your graphs fully and write an explanation of the supply and demand changes in the
two products.
(30 points)

4. The owner of Christie’s Bookstore is looking into the sales of its Health & Fitness magazine section.
She finds that her equilibrium is at 1,000 magazines per month sold at an average price of $4.25 per
magazine. When the price of these Health & Fitness magazines rose to $4.95 each, the quantity sold
fell to 900 magazines per month, while the quantity supplied to her increased to 1,250 a month.

a. Draw an appropriate graph for Christie’s original Health & Fitness magazine market position.
b. Calculate the price elasticity of demand for the Health & Fitness magazines between prices
$4.25 and $4.95. Is it elastic or inelastic? How do you know?
c. Calculate the price elasticity of supply for the Health & Fitness magazines between prices $4.25
and $4.95. Is it elastic or inelastic? How do you know based on your answer?
d. Describe three real examples that could affect the elasticity of demand for the Health & Fitness
magazines at Christie’s.
e. Christie also notices that when the average price of the Health & Fitness magazines rose from
$4.25 to $4.95, the quantity of nutritious snack bars sold at the checkout register fell by 12%.
Calculate the cross elasticity of demand between the two goods. Based on your answer, are
they substitutes or complements? Explain why.
(30 points)

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ASSIGNMENT #3 QUESTIONS
 Due no later than 11:00 p.m. on Sunday of Unit 6
 Weight 2.5% of the final grade
Late Submission Policy
 This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
 This page will close and will not allow further submissions after this Late Submission period has
expired.
 In the event of an emergency that prevents you from submitting within this time frame, special
permission must be obtained from your instructor. Documentation substantiating the emergency
is required. If the extension is granted, the professor will reopen the submission function for you
on an individual basis.
 Do not email your submissions to your professor, either before or after the due date. All
coursework should be submitted through the online course (Moodle) only.
Description
Students are to complete assignments in Word (or some other compatible word processor; no PDF) and
apply economic concepts learned in this course to the answers submitted for evaluation. Do not submit
more than ONE document for your assignment.

1. Think about a purchase that you made recently. Explain how you might have applied the “economic
way of thinking” in making your purchase?
(10 points)

2. The efficient number of workers a firm should hire is at the point where the marginal revenue
product of an extra worker (that is, price of product x number of units the worker produces) is equal
to the cost or wage of that worker. For example, if you pay your worker $100 per day (the Marginal
Cost), as long as that worker continues to bring in more than $100 a day (Marginal Revenue) you
may continue to hire more workers. The optimal point is when the wage (or MC) is equal to the
revenue (or MR) that the worker generates for the company. That is, where MC = MR.
So, here is a scenario. Amy owns a fish shop. She employs students to sort and pack the fish. The
students can pack the following amounts of fish in an hour:

Number of students: 1 2 3 4 5 6 7 8
Quantity of fish (kilograms): 20 50 90 120 140 150 150 140

a. Use the data above to calculate the MP (marginal product) of workers.

b. If all fish shops in Amy's area pay their packers $5 an hour, how many students will Amy
employ? Assume Amy sells her fish for $0.50 a kilogram. Explain your answer and show all
calculations.
(20 points)

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3. The table below shows a car manufacturer’s total cost of producing cars.

Q TC TVC AVC AFC ATC MC

0 $500,000
1 540,000
2 560,000
3 570,000
4 590,000
5 620,000
6 660,000
7 720,000
8 800,000
9 920,000
10 1,100,000

a. For each level of output, calculate the total variable cost [TVC], the average variable cost [AVC],
the average fixed cost [AFC], the average total cost [ATC], and the marginal cost [MC].
b. What is this manufacturer’s fixed cost? Explain how you derived this.
c. What is the minimum average cost output quantity? Explain how you derived this.
d. Create a single, well-labeled diagram that shows the manufacturer’s AVC, ATC, and MC curves.
(35 points)

4. Kyle eats two types of fruits – bananas and apples. He has a budget of $50 to spend on fruits per
month. The price of bananas is $5 and that of apples is $10.
a. Graph Kyle’s budget line by plotting bananas on the horizontal axis and find the slope of his
budget line.
b. Write down the budget equation for Kyle’s consumption of fruits (bananas on the horizontal
axis).
c. Suppose the price of bananas has doubled. Show this effect graphically and calculate the
slope of the new budget line (bananas on the horizontal axis).
d. Suppose Kyle now reduces the money spent on fruits to $40. Show this effect on a graph and
calculate the slope of the new budget line (bananas on the horizontal axis; price of bananas
is $5 and price of apples is $10).
(35 points)

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ASSIGNMENT #4 QUESTIONS
 Due no later than 11:00 p.m. on Sunday of Unit 8
 Weight 2.5% of the final grade
Late Submission Policy
 This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
 This page will close and will not allow further submissions after this Late Submission period has
expired.
 In the event of an emergency that prevents you from submitting within this time frame, special
permission must be obtained from your instructor. Documentation substantiating the emergency
is required. If the extension is granted, the professor will reopen the submission function for you
on an individual basis.
 Do not email your submissions to your professor, either before or after the due date. All
coursework should be submitted through the online course (Moodle) only.
Description
Students are to complete assignments in Word (or some other compatible word processor; no PDF) and
apply economic concepts learned in this course to the answers submitted for evaluation. Do not submit
more than ONE document for your assignment.

1. Under what conditions should a competitive firm shut down in the short run? Briefly explain why.
(10 points)

2. a) Using appropriate graphs, explain how and why the demand curve for monopolist firm differs from
the demand curve of a firm in perfect competition?

b) What do firms in perfectly competitive markets and monopolistic competitive markets have in
common? How are they different in the long run?
(20 points)

3. For each of the following observations about an industry briefly explain whether it characterizes
a firm that is perfectly competitive or not perfectly competitive.
a) The firms are spending lots of money on advertising.
b) The firms are currently making economic profits in the short run.
c) Two firms produce 60 percent of the total industry output.
d) The firms issue coupons offering a price discount.
(20 points)

4. Let’s compare the price and output decisions of a competitive firm versus a monopoly. Examine Diagram
1 below and answer the questions that follow.

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Diagram 1

a. In Diagram 1 above, suppose the industry is a competitive one. What would be the price
charged and quantity exchanged? Explain how you derived your answer.
b. Now, assume Diagram 1 represents an industry that is a monopoly. What would be the
prevailing price and quantity exchanged? Explain.
c. Assume Diagram 1 represents an industry that is a monopoly. What would be the profit per
week? Show your calculations.
d. At what point (C, E, F, or G) on Diagram 1 does allocative efficiency occur? Explain.
(25 points)

5. Jackie, Jerry, and Johnny run the only saloon in town. Jackie wants to sell as many drinks as possible
without losing money. Jerry wants the saloon to bring in as much revenue as possible. Johnny wants to
make the largest possible profits. Examine the monopoly diagram below that contains the demand,
marginal revenue and cost curves of the saloon. Determine the price-quantity combination that fits each
owner’s preference and explain the reason behind each combination.

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(25 points)

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