1.a) Your economics final exam is tomorrow.
You want to play games for 1 hour and you chose
the latter option.
Describe the situation you are facing in light of mankiw’s principle 1,2.
Say, the electricity used for the room's lighting costs 10tk. Will you include it in the opportunity
cost of gaming ? Why or why not. [3]
b) Rashid is confused between pursuing his BBA degree and taking a job offer of 3 Lakh salary
per year.
Identify the elements of scarcity, choice and analyse the opportunity cost [4]
c) What's the main purpose of economic model?
Why economists make assumptions? [3]
d ) Country A produces two goods : foods and machineries. Currently, it is operating inside the
PPF due to high unemployment.
i) Why unemployment causes to operate inside PPF?
ii) How technological advancement in production of machinery will affect PPF? [5]
2. Suppose that the demand and supply functions for good X are
Qd = 50 - 8P
Qs = 17.5 + 10P
(a) What are the equilibrium price and quantity? [2]
(b) What is the market outcome if price is $2.75? What do you expect to happen? Why? [4]
(c) What is the market outcome if price is $4.25? What do you expect to happen? Why? [4]
(d) What happens to equilibrium price and quantity if the demand function becomes Qd = 59 -
8P? Draw the demand curve and intercept the slope and intercept of the function [5]
3. (a) If a fixed quantity of a good is available, and no more can be made, what is the price
elasticity of supply? (2)
b) When the price of a commodity falls by $2 from $10 , quantity demanded increases by 10
units Price elasticity of demand is -1.
Calculate the quantity demanded at the initial Price. (3)
(c) Qd = 11 - P ; If the price is $6 and quantity demanded is $5, what is the price elasticity?
Interprate the result (4)
(d) For each of the following equations determine wheather the demand is eleastic, inelastic or
unitary elastic.
i) Qd = 100 - 4P & P=$20
ii) Qd = 1500 - 20P & P=$5
iii) Qd = 50 - 0.1P & P=$20
[6]
4. A college student has two options for meals: eating at the dining hall for Tk 60 per meal, or
eating soup for 15Tk per meal. Her weekly food budget is Tk 600
a.(i) Derive the equation of budget line ,
ii) draw the line and and caluclate the slope
iii) what the significance of that slope?
iv) Assuming that she spends equal amounts on both goods, draw an indifference curve
showing the optimum choice. Label the optimum as point A. [8]
b. Suppose the price of a Cup of Soup now rises to 20Tk. Show the consequences of this
change in price using diagram of (a.iv) . Assume that our student now spends only 30 percent of
her income on dining hall meals. Label the new optimum as point B. [5]
c. What happened to the quantity of Cups of Soup consumed as a result of this price change?
What does this result say about the income and substitution effects? Explain. [2]
5. a) “Karim’s bread shop” has following cosf schedules
Quantity Variable Total Cost
Cost ($) ($)
0 0 50
1 15 65
2 35 85
3 60 110
4 90 140
5 125 175
6 165 215
i) Calculate the average variable cost (AVC), average total cost (ATC), and marginal cost (MC)
for each quantity.
[5]
b) Consider the following cost function
C = ⅓ Q^3 - 7Q^2 + 111Q + 50 [Sh :195]
i) Find Average fixed cost & Marginal cost [3]
ii) Show that, MC reaches minimum before AVC [4]
(c) Consider the following cost scehdule for a firm:
Q 1 2 3 4 5 6 7
Cost 15 28 42 58 76 96 118
[Q=Quantity prdouced]
Does the firm experience economies or disconomies of scale? when? [3]
6. a) consider the following market supply and demand curve in a perfectly competitive industry
as
Qd = 25 - 0.5 P
Qs = 10 - P.
The cost function of a firm in that industry is: C = 25 - 2Q + 4Q^2
If it produces, then how much quantity should it produce?
Should this firm produce in the short run?[7]
b) A monopolist has the cost function TC(Q) = 200Q + 15Q^2 and faces the demand function
given by p = 1200 - 10Q
What output maximizes its profit? What is the profit-maximizing price? What is its maximum
profit? [5]
c) Monopolists never face loss. Do you agree? [3]
7. Suppose ABC is a profit maximizing firm in a perfectly competitive market and labor is its only
input. The company’s production function is as follows:
Number Quantity
of workers produced
0 0
1 10
2 25
3 40
4 50
5 55
6 57
a) Graph the production function. [2]
b) Calculate the marginal product for each additional worker. Does the change in the
marginal product conform with the production function curve?Explain. [3]
c) If, each unit sells for 100 BDT. Calculate the value of the marginal product for each
worker.[3]
d) How many workers the firm will hire , if the wage is 500 tk [3]
e) Graph the firm’s labor demand curve. [2]
f) What happens to the demand curve if the price of the product increases to 150 BDT
each? [2]
