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Microeconomics Tutorial 6: Key Concepts

This document contains a tutorial for a microeconomics course. It provides instructions for students to answer questions in Section A, which is worth 40 marks. The questions cover various microeconomics concepts like the law of diminishing returns, returns to scale, calculating total cost, marginal cost, average variable cost, average total cost from a production table, and explaining scenarios relating to marginal product and average total cost. It also defines accounting profit and economic profit, and asks students to calculate these values for a firm based on given financial information.

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Thileepan Sandiran
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282 views3 pages

Microeconomics Tutorial 6: Key Concepts

This document contains a tutorial for a microeconomics course. It provides instructions for students to answer questions in Section A, which is worth 40 marks. The questions cover various microeconomics concepts like the law of diminishing returns, returns to scale, calculating total cost, marginal cost, average variable cost, average total cost from a production table, and explaining scenarios relating to marginal product and average total cost. It also defines accounting profit and economic profit, and asks students to calculate these values for a firm based on given financial information.

Uploaded by

Thileepan Sandiran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SEMESTER 3 / YEAR 2019

TUTORIAL 6

CHAPTER 6

COURSE : MICROECONOMICS
COURSE CODE : BBEC1013
DEPARTMENT : MANAGEMENT, ACCOUNTING AND FINANCE
LECTURER : DR.YASOTHA NAIR

Student’s Name : _______________________________

Student’s ID : _______________________________

Batch No. : _______________________________

1
SECTION A

Instruction: Answer ALL the questions in this section. This section carries a total of 40
marks.

1) Explain the meaning of the law of diminishing returns. (5 marks)

2) Discuss the concept of returns to scale ( 5 marks)

Table 1: Jane’s Farm Production

Quantity Total cost


(gallons per day) (dollars per day)
0 400
100 703
200 880
300 1,008
400 1,160
500 1,410
600 1,840

3) Jane’s Farm produces and sells milk. The market for milk is perfectly competitive.
The market price of milk is $2.50 per gallon. The relationship between the farm's
output and total costs is shown in the Table 1.
Calculate Jane’s:
(i) Total Cost (TC) (3 marks)
(ii) Marginal Cost (MC) (3 marks)
(iii) Total Variable Cost (TVC) (3 marks)
(iv) Average Variable Cost (AVC) (3 marks)
(v) Average Total Cost (ATC) (3 marks)

[Total: 15 marks]

4) Consider the following two scenarios:

a) The marginal product of a worker in a firm is 10 units. When an additional worker is


employed, his marginal product is less than 10 units. Explain. (3 marks)

b) The average total cost of a firm producing 10 units of output is $200. When it
produces an additional unit, the average total cost increases to $300. Explain
(3 marks)

2
5). A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000
on capital and $200,000 on materials.
a) What is the definition of accounting profit and calculate the firm's accounting profit?
(5 marks)

Continuing from question 1a, the firm's factory sits on land owned by the firm that could
be rented out for $30,000 per year.

b) What is the definition of economic profit and calculate the firm's economic profit for
last year? (4 marks)

[Total: 40 marks]

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