Assessment 2 – Short Answer Questions ECON11026

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Principles of Economics: ECON11026
Term 2 – 2019
Assessment 2 – Short Answer Questions

Due date: 6 September 2019 (Friday of Week 7) ASSESSMENT
Weighting: 30%2
Length: Approximately 1500-2000 words (excluding
graphs, tables and reference list)
It is a progressive assignment based on the
topics of weeks 4-6 covering Chapters 7, 8, 9
and 11.

Objectives
This assessment item relates to course learning outcomes 2 and 3 as listed in the
Unit Profile.
Q1. Market Structures: Perfect Competition Chapter 7 (8 marks)
Suppose Julie sells Chinese teapot, sugar, and milk bowl sets in a perfectly
competitive market. Her output per day and her costs are as shown in the Table-1.
Table 1

Output
per day
Total
cost $
TR$ ATC$ MR$ MC$ Profit $
0 20
1 32
2 37
3 48
4 61
5 75
6 92
7 113
8 136

(a) Suppose the current equilibrium price in the teapot market is $10. Complete
Table-1 and answer part (b). (1 mark)
(b) To maximise profit, how many teapot sets will Julie produce, what price will
she charge, and how much profit (or loss) will she make? (1 mark)
(c) Draw a graph to illustrate your answer and explain. Your graph should include
Julie’s demand, ATC, AVC, MC, and MR curves, the price she is charging, the
quantity produced and the area representing the profit (or loss). (2 marks)
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(d) Suppose now the current equilibrium price in the teapot set market has
increased to $20, complete the relevant columns TR, MR and Profit. (1 mark)
(e) To maximise profit, how many teapot sets will Julie produce, what price will
she charge, and how much profit (or loss) will she make? (1 mark)
(f) Draw a graph to illustrate your answer and explain. Your graph should include
Julie’s demand, ATC, AVC, MC, and MR curves, the price she is charging, the
quantity produced and the area representing the profit (or loss). (2 marks)
Q2. Market Structures: Monopoly Chapter 8 (6 marks)
(a) If you are the owner of the only bookstore in a small town, do you have a
monopoly? Explain. (2 marks)
(b) Draw graph and explain the inefficiency of a monopoly firm such as public
sector provision of electricity. (1 mark)
(c) Refer to monopoly Figure 1 below and answer the following questions. (3
marks)

(i) What is the profit maximising quantity and price charged by a monopoly
firm? (1 mark)
What is the total revenue and total costs at the profit maximising level of
output? (1 mark)
What is the monopoly profit? (0.5 mark)
If the industry was organised as a perfectly competitive industry, what
would be the profit maximising quantity and price? (0.5 mark)
Figure 1
(ii)
(iii)
(iv)

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Q3. Market Structures Monopolistic: Chapter 9 (6 marks)
(a) Table-2 below shows the demand and the cost data facing ‘Velvet Touches’, a
monopolistically competitive producer of velvet throw pillows.
Table 2

Quantity Price $ TR $ MR$ TC$ MC $ Profit $
1 30 30 32
2 28 56 43
3 26 78 53
4 24 96 64
5 22 110 76
6 20 120 90
7 18 126 106
8 16 128 126
(i)
(ii)
Calculate MR and MC and complete the columns. (1.5 marks)
What are the profit maximising quantity and price for ‘Velvet Touches’? (1
mark)
How much is the profit or loss of the firm? Show the working. (1 mark)
If the firm’s profit or loss is typical of all firms in the market for throw pillows,
what is likely to happen in the future? (1 mark)
Will there be more firms or will some existing firms leave the industry?
Explain your answer. (1 mark)
What will happen to a typical firm’s profit or loss after all entry/exit
adjustments? (0.5 mark)
(iii)
(iv)
(v)
(vi)

Q4. Market Failure and Externalities: Chapter 11 (6 marks)
(a) Suppose there are several paper mills producing paper for a market. These
mills, located upstream from a fishing village, discharge a large amount of
wastewater into the river. The waste material affects the number of fish in the
river, and the use of the river for recreation and as a public water supply source.
Study the paper market Figure-2 and answer the following questions.
Figure 2
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(i) What does the curve S1 and S2 represent? Explain. (1 mark)
(ii) What is the economically efficient output level? (1 mark)
(iii) What is the deadweight loss from producing at the market equilibrium?
Explain why? (1 mark)
(a) Consider a chemical plant that discharges toxic waste into a nearby waterway.
To reduce the emissions of toxic waste, the firm can install pollution abatement
devices. Figure-3 below shows the marginal benefit and the marginal cost from
reduction in the toxic waste emissions.
Figure 3
(i) What is the economically efficient level of pollution reduction? (1 mark)
(ii) Suppose the emissions reduction target is currently established at 8 million
tons. What is the area that represents the cost of eliminating an additional
1 million tons? (1 mark)
(iii) Suppose the emissions reduction target is currently established at 8 million
tons. Should society undertake to reduce an additional 1 million tons so
that the total reduction is 9 million tons? (1 mark)
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ECON11026: Assignment – 2 Marking Sheet
Student Name:

Question No Section Mark Total Comments
Q1 (8 marks) a 1
b 1
c 2
d 1
e 1
f 2
Q2 (6 marks) a 2
b 1
c (i) 1
c (ii) 1
c (iii) 0.5
c (iv) 0.5
Q3 (6 marks) a (i) 1.5
a (ii) 1
a (iii) 1
a (iv) 1
a (v) 1
a (vi) 0.5
Q4 (6 marks) a(i) 1
a(ii) 1
a(iii) 1
b(i) 1
b(ii) 1
b (iii) 1
Clarity of
presentation
1
Clarity of graphs 1
Evidence of
research
1
Referencing 1
Total marks 30

Additional Comments: Markers Signature & Date
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………
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Helpful Hints for Written Assessment 2
Use the DADA framework when structuring your answers to all questions in
economics. (Definitions: define the key terms; Assumptions: list or make
assumptions as required; Diagrams: draw relevant graphs/tables and explain; and
original Analysis: apply the theory to real life economic examples and explain).
(i) You must read the chapters each week and work on the assignment
questions progressively each week—which will prevent you from asking
for extensions and also submit all assessment task on time to pass the
course. So please follow a weekly study schedule.
(ii) Plagiarism is a real concern, therefore, please remember to reference intext and also provide a reference list. Do not give your assignment to
anyone or copy from other students. Please seek help from the Academic
Learning Centre staff on paraphrasing and referencing.

(iii)
(iv)
Concepts and key terms must be defined accurately and completely.
The assumptions upon which the analysis is based must be stated at the
outset.
Diagrams must be drawn properly, correctly labelled and the relations they
depict explained on the diagram and in the accompanying text of your
answer.
Answers must be complete, addressing the specific tasks nominated in the
questions.
(v)
(vi)

(vii) All reference sources must be acknowledged in-text and a list of
references provided using the APA Referencing Style.
(viii) Where a question has more than one part, so too should the answer.
Ensure complete coverage in the analysis section of your answer.
(ix) As a minimum, students should reference at least two credible sources.