Wednesday, February 20, 2019

BFN 112/BAM 114-PRINCIPLES OF ECONOMICS1- REVIEW QUESTIONS WITH SOLUTIONS


1. (a)Mawibekiri Nigeria Limited provides the following information as contained in the table below:
Output
Fixed
Cost
Variable Cost
Total
Cost
Average
Cost
Marginal
Cost
10
30
40
50
60
70
80
1,000
1,000
1,000
1,000
1,000
1,000
1,000
500
1,300
1,500
1,600
2,000
3,200
5,000



Required: Copy and complete the above table.
(b) Distinguish between Accountant`s view of cost and Economist`s view of cost.

SUGGESTED SOLUTION
1.(a)
Output
Fixed
Cost
Variable Cost
Total
Cost
Average
Cost
Marginal
Cost
10
30
40
50
60
70
80
1,000
1,000
1,000
1,000
1,000
1,000
1,000
500
1,300
1,500
1,600
2,000
3,200
5,000
1,500
2,300
2,500
2,600
3,000
4,200
6,000
150
76.67
62.5
52
50
60
75
-
40
20
10
40
120
180
NOTICE:
Total Cost = Fixed Cost + Variable Cost
Average Cost =  Total Cost
                             Output
Marginal Cost = Change in Total Cost
                             Change in Output
(b) Accountant`s view cost in terms of the amount of money spent in order to have a commodity or service. That is, the Accountant`s view cost in term of payment which known as money cost in Economics.
Economist`s view cost on the other hand, in term of the alternative forgone which is known in Economics as opportunity cost not necessarily in terms of expenditure incurred.

2.(a) Distinguish between a change in supply for a commodity and a change in quantity supplied for a commodity.
(b) Given the demand and supply equations for a commodity as:
Q= 200 – 0.2P
S = 50 + 0.3P
Determine:
i. Equilibrium Price and Quantity.
ii. Excess supply if the price increases to N360
iii. Excess demand if the price decreases to N240

2.(a)  A change in supply for a commodity is when different quantities of goods or services are supplied at a particular price. A change in supply brings about a shift in the supply curve either to the right or to the left. A shift of the supply curve to the right indicates an increase in supply while a shift to the left shows a decrease in supply. These can be illustrated with the diagrams (CHECK YOUR SCHOOL NOTE).

While Change in quantity supplied is when there is a rise or  a fall in price of the commodity that will bring about  increase or decrease in the quantity supplied of a commodity. A fall in price of a commodity will result in decrease in the quantity supplied which is known in Economics as contraction of supply and a rise in price of a commodity will bring about increase in the quantity supplied and which is known in Economics as expansion or extension of supply.
These can be illustrated with the diagrams (CHECK YOUR SCHOOL NOTE).

(b) i.  Q= 200 – 0.2p
S= 50 + 0.3P
Q = S
200- 0.2P = 50 + 0.3P
200-50 = 0.3P + 0.2P
150 = 0.5P
P = 150    =  N300
       0.5
Q= 200 – 0.2p
Q = 200 – 0.2(300)
Q = 200- 60 = 140units
S= 50 + 0.3P
S = 50 +0.3 (300)
S = 50 + 90 = 140units
The Equilibrium Price = N300
The Equilibrium Quantity is 140units
ii. Excess supply if the price increases to N360
Q= 200 – 0.2p
Q = 200 – 0.2(360)
Q = 200- 72 = 128units
S= 50 + 0.3P
S = 50 +0.3 (360)
S = 50 + 108 = 158units
Excess supply = S-Q
Excess supply= 158 – 128 = 30units
iii. Excess demand if the price decreases to N240
Q= 200 – 0.2p
Q = 200 – 0.2(240)
Q = 200- 48 = 152units
S= 50 + 0.3P
S = 50 +0.3 (240)
S = 50 + 72 = 122units
Excess Demand = Q-S
Excess Demand= 152 – 122 = 30units

                             Best of Luck!


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