ECON 100 - Tutorial 4 PDF

Preview

Summary

Download ECON 100 - Tutorial 4 PDF

Description

Tutorial 4 1) A characteristic of the long run is A) there are fixed inputs. B) all inputs can be varied. C) plant capacity cannot be increased or decreased. D) there are both fixed and variable inputs. 2) Economic costs of production differ from accounting costs in that A) economic costs include expenditures for hired resources while accounting costs do not. B) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not. C) accounting costs include expenditures for hired resources while economic costs do not. D) accounting costs are always larger than economic costs.

3) Which of the following would be categorised as an opportunity cost? a. not being able to spend your $10 000 savings if you sink the money into your business b. the cost of purchasing supplies for your house-cleaning business c. the cost of purchasing auto insurance for your dry-cleaning delivery business A) a only B) a and c only C) b and c only D) all of the above 4) Which of the following statements is false? A) Marginal cost will equal average total cost when marginal cost is at its lowest point. B) When marginal cost is less than average total cost, average total cost will fall. C) When marginal cost is greater than average total cost, average total cost will rise. D) Marginal cost will equal average total cost when average total cost is at its lowest point. 5) Which of the following is not a characteristic of a perfectly competitive market structure? A) There is a very large number of firms that are small compared to the market. B) All firms sell identical products. C) There are no restrictions to entry by new firms. D) There are restrictions on exit of firms.

6) Both buyers and sellers are price takers in a perfectly competitive market because A) the price is determined by government intervention and dictated to buyers and sellers. B) each buyer and seller knows it is illegal to conspire to affect price. C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. D) each buyer and seller is too small relative to others to independently affect the market price. 7) Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen? A) The firm will sell more output than its competitors. B) The firm's revenue will increase. C) The firm will not sell any output. D) The firm's profits will increase.

8) If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm A) added more to total costs than it added to total revenue. B) added more to total revenue than it added to total cost. C) is maximising marginal profit. D) has minimised its losses.

Problem 1 – from The Daily Telegraph 22/3/18 KYLAR LOUSSIKIAN NATIONAL POLITICAL REPORTER A MASSIVE tax cut for big business is within reach for the Turnbull government, with some of the nation’s top executives — in a last minute sales pitch — vowing the money would reach the pockets of everyday families. Finance Minister Mathias Cormann is still negotiating with crossbench senators Pauline Hanson, Derryn Hinch and newly minted senator Tim Storer, after Jacqui Lambie’s replacement Steve Martin signalled his intention to back the reforms. The tax cuts would extend earlier reductions for small businesses, from 30 per cent to 25 per cent, to all companies , which the government argues is desperately needed to keep jobs in Australia after huge cuts in tax rates in the US and Europe. The letter, signed by executives at major firms including Qantas CEO Alan Joyce, BHP boss Andrew Mackenzie , Fortescue Metals chairman Andrew “Twiggy” Forrest and CEOs and managing directors of Energy-Australia , Origin Energy, Wesfarmers and Woolworths , and circulated to the crossbench by the Business Council yesterday, urged support for the plan. “If the Senate passes this important legislation we, as some of the nation’s largest employers, commit to invest more in Australia which will lead to employing more Australians and therefore stronger wage growth,” it read. Senators Hanson and Hinch have said they could back the tax cuts if they were satisfied that major businesses would commit to employing more people instead of sending higher profits back to their shareholders in the form of bigger dividends. …

Prime Minister Malcolm Turnbull yesterday said that it was “vitally important” the tax cuts were passed in full after US President Donald Trump slashed the US corporate tax rate from 35 per cent to 21 per cent earlier this year. “We have to have a competitive company tax rate to attract investment, which will drive jobs,” Mr Turnbull said. Labor’s treasury spokesman Chris Bowen said the cuts were “an unfunded wrecking ball” which would cost the budget $15 billion every year in a decade. “Ultimately it is working and middle income Australians who will be paying the price,” Mr Bowen said. Copyright © 2018 The Daily Telegraph Question – Using QANTAS as an example, show the effect of the tax cut on the airline industry market using a supply and demand diagram (make sure to clearly show the predicted effect on price and quantity). Consider how this policy can effect the labour market in the same industry (draw a separate supply and demand curve for labour demand and labour suypply, where the price on the vertical axis is the wage rate and the quantity on the horizontal axis is employment). Problem 2 Draw a graph showing a firm in a perfectly competitive market that is making a profit in the short run. Make sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve and average total cost curve, and make sure that you show the area representing the firm’s profits. Show what happens in the long run (separate graphs for industry and firm level). Repeat for a short run loss (time permitting)....