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Microeconomics past exam paper Essay

Don’t change; Don’t change), (Decrease; Decrease) b) (Increase; Don’t change), (Don’t change; Decrease) c) (Decrease; Don’t change), (Don’t change; Decrease) d) (Increase; Decrease), (Decrease; Increase) SECTION B All questions in this section are worth the same number of marks. For each of the following questions: Consider the statements made by Alan Accountant and Edwina Economist. Say whether you believe each statement is correct or incorrect. Briefly explain your answer. Note that most of the marks will be given for your explanation.

Question Bal Alan Accountant and Edwina Economist are discussing the government’s recent decision to stop paying subsidies to home-owners who buy solar panels to provide a source of power to their homes. Alan says: ‘This change in policy will not have a big effect. Because supply of solar panels is price-elastic, therefore removing the subsidy only causes a small decrease in the quantity of panels sold. ‘ Edwina disagrees. She says: ‘The fact that supply is price-elastic means that the change in policy will cause a relatively large decrease in the quantity of panels sold. ‘ Question 82

Alan Accountant and Edwina Economist are advising their friend Marci Manager on operating her business. Marci sells ice-creams, and because of their distinctive

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flavors, the business has a high degree of market power. Marci is trying to decide whether to increase her daily sales as a way of earning higher profits. Alan says: ‘Marci can produce the extra ice-creams at the same marginal cost as the ice-creams she is already producing. Hence she will definitely earn higher profits by increasing her sales. ‘ Edwina disagrees. She says: ‘That Marci has a constant marginal cost of supply does mean that her TACT will decrease when she sells more.

But we would need more information to know that her profits would increase when she sells more ice-cream. ‘ Question 83 Alan Accountant and Edwina Economist are advising their friend Gerry Gamekeeper who is going to play in the World Championship of ‘Scissors, Paper, Rock. Gerry will be playing a sequence of games against each opponent in the contest. Edwina Economist says: ‘My advice is to choose randomly between the three strategies in each game you play. ‘ Alan Accountant disagrees. He says: ‘If you choose randomly you will only have a one-third chance of winning each game. But I have a better strategy.

The average fee increase at private schools was about 5 per cent, compared to 8 per cent sat year, with the impact of the economic downturn tempering fee rises. ‘ ‘Teacher pay blamed tort private school tees hike’, The Age, January 7 2010, page 3 Use the model of a profit-maximizing firm with market power to explain why private schools would want to increase school fees in response to an increase in teacher salaries. Part B (10 marks) Stanley has begun planning for selling hamburgers at the 2012 Grand Final.

He thinks that there are two types of consumers, Stalled fans who are willing to pay $5 for a hamburger, and Colliding fans who are willing to pay $3. The MAC of making a hamburger is $2. At the same time, Townie, who is planning to sell Pepsi and chips at the Grand Final, suggests to Stanley that they should form a partnership. Preferences of Stalled and Colliding fans for these items are described in the table below. There are 200 Stalled fans and 50 Colliding fans who are potential customers.

Pepsi costs $1 for Townie to obtain, and hot chips cost her $1 to make. Hamburger Pepsi Hot chips Stalled fans $5 $3 $2 Colliding fans a)(5 marks) Suppose Stanley and Townie were to sell hamburgers, Pepsi and hot chips as separate items. What would be the profit maximizing price to charge for ACH item? B) (5 marks) Could Stanley and Townie choose to bundle Just two items and make higher profits? What explains this result?

Question CO (1 5% of total marks) Part A (7 marks) ‘To spirit or not to spirit, that is the question… The speakers of Carton’s Little Italy have long been considered a blight by many Millenarian, and recently the restaurant owners who employ them have come to think they might have a point… So on Tuesday afternoon the owners of eight Italian restaurants on the eastern side of Logon street… Met to discuss what to do about a practice that is both a tradition and a

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