Explain the concept of increasing opportunity cost using the production possibility table and curve plotted in Q1ai above. (2 mark)

All Questions

Question 1 (10 marks)
a.       Joan, who has been a university student for a year, has just started a new job. She realises that if she works more hours there will be an impact on her grades. The following is Joan’s production possibility table for work and her average grades:
Choices
Production possibilities Grade (%) Work
(hours per week)
A 0 60
B 20 55
C 40 45
D 60 30
E 80 0
From the figures in the table above:
i. Plot the production possibility curve for Joan. (1 mark)
ii. Explain the concept of increasing opportunity cost using the production possibility table and curve plotted in Q1ai above. (2 mark)
iii. If the opportunity cost of Joan increasing her grade was constant regardless of how many hours she worked, what would be the shape of her production possibility curve? Draw this graph. Which of the two shapes would be more likely, and why? (2 marks)
iv. What would be happening if Joan’s combination of her grades and hours of work per week were below the curve as plotted above in Q1ai? (1 mark)
v. How could Joan push her combination of her grades and hours of work per week past the current curve? (2 mark)
b.   After a period of good growing weather Australia produced a plentiful wheat crop – does this mean that it will not have a scarcity problem in regards to wheat? Provide reasons for your answer (300 words maximum).
(2 marks)
Question 2 (10 marks)
In February 2018, it was reported that Australia’s solar power capacity could almost double in a year.
a.   Use demand and supply curves to show the doubling of capacity. (3 marks)
b.   Use demand and supply curves to show what is likely to happen to demand over time in response to the capacity increases (see Q2a above). (3 marks)
c.   Use demand and supply curves of the solar powered industry and coal-fired power electricity industry to show what is likely to happen to demand and supply of solar power if the government introduces a tax on coal-fired power electricity. (4 marks)
Question 3 (10 marks)
a.     Explain in your own words, using demand and supply curves, the concepts of consumer and producer surplus. (3 marks)
b.     Using demand and supply curves describe and illustrate what would happen to consumer and producer surplus if solar power capacity is increased. (4 marks)
c.     The treasurer, Scott Morrison, has stated that business tax cuts will be good for business and workers. Is this a positive or a normative statement? Provide reasons for your answer (300 words maximum). (3 marks)
Question 4 (10 marks)
a.     Complete the table below outlining the demand for hot doughnuts in winter. In your calculations use the midpoint method to calculate the price elasticities. (5 marks)
Price Quantity demanded Total revenue Percent change in price Percentage change in quantity demanded Elasticity value Assessment of Elasticity
($) ($)
0.5 16
1 13
1.5 10
2 7
2.5 4
3 1
b. Do you think the price elasticity of demand for hot doughnuts in summer would be the same as in winter or would it become more elastic or more inelastic? Explain your answer. (3 marks)
c. What would you expect the price elasticity of demand for cigarettes to be? Explain your answer. (2 marks)
Question 5 (10 marks)
a i. Complete the cost schedule below for a company operating in a free-market (remember that MC and MR values are placed midway between the output figures):
Output Total Fixed Cost (TFC) Total Variable Cost (TVC) Total Cost (TC) Average total cost Marginal Cost (MC) Total Revenue Average Revenue Marginal Revenue Profit
$ $ (ATC) (TR) (AR) (MR) $
$ $ $ $ $ $
0 100 100
1 220
2 300
3 390
4 530
5 690
(4 marks)
ii.   If the firm is operating in a perfect market where the market price for the good the company produces is $150, how many items should this company produce in order to maximise profit? Explain your answer. (2 marks)
iii.   Graph the average total cost, marginal cost, average revenue and marginal revenue curves. (2 marks)
b.     In your own words explain the concept of diminishing returns and describe what will happen to marginal product, total output and marginal cost when diminishing returns start to occur. (2 marks)
TOTAL FOR ASSIGNMENT 1: 50 marks (weighting 25% of total marks for the unit)

Question 1

Question 1 (10 marks)
a.       Joan, who has been a university student for a year, has just started a new job. She realises that if she works more hours there will be an impact on her grades. The following is Joan’s production possibility table for work and her average grades:
Choices
Production possibilities Grade (%) Work
(hours per week)
A 0 60
B 20 55
C 40 45
D 60 30
E 80 0
From the figures in the table above:
i. Plot the production possibility curve for Joan. (1 mark)
ii. Explain the concept of increasing opportunity cost using the production possibility table and curve plotted in Q1ai above. (2 mark)
iii. If the opportunity cost of Joan increasing her grade was constant regardless of how many hours she worked, what would be the shape of her production possibility curve? Draw this graph. Which of the two shapes would be more likely, and why? (2 marks)
iv. What would be happening if Joan’s combination of her grades and hours of work per week were below the curve as plotted above in Q1ai? (1 mark)
v. How could Joan push her combination of her grades and hours of work per week past the current curve? (2 mark)
b.   After a period of good growing weather Australia produced a plentiful wheat crop – does this mean that it will not have a scarcity problem in regards to wheat? Provide reasons for your answer (300 words maximum).
(2 marks)

Q1 workings

Choices
Production possibilities Grade (%) Work
(hours per week)
A 0 60
B 20 55
C 40 45
D 60 30
E 80 0
From the figures in the table above:
i. Plot the production possibility curve for Joan. (1 mark)
ii. Explain the concept of increasing opportunity cost using the production possibility table and curve plotted in Q1ai above. (2 mark)
The concept of increasing opportunity cost for Joan will be the wages she will need to forgo for better grades. As the graph is not constant, being the same value for the loss and is curved (bowed out) there is opportunity for Joan within the chart to reallocate hours that would be better suited.
iii. If the opportunity cost of Joan increasing her grade was constant regardless of how many hours she worked, what would be the shape of her production possibility curve? Draw this graph. Which of the two shapes would be more likely, and why? (2 marks)
Choices Opportunity costs – A-B, B-C, C-D, D-E Constant Opporunity cost
Production possibilities Grade (%) Work
(hours per week) Work ( hours per week) Grade (%) Work
A 0 60 5 0 60
B 20 55 10 20 45
C 40 45 15 40 30
D 60 30 30 60 15
E 80 0 0 80 0
Microsoft Office User: Blue – Opportunity cost Organge – Constant Opportunuty cost
Opportunity cost is more likey as the sacrafice isn’t equal. It isn’t reasonable to expect to receive 80% marks and not work as this isn’t neceaasrrily the
Wasted opportuntiy as the Constant line is within the Opoortunity so this isn’t working with the best possible outcome

Choices

0 20 40 60 80 60 55 45 30 0

Grade %

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Hours worked

Choices

0 20 40 60 80 60 55 45 30 0 0 20 40 60 80 60 45 30 15 0

Grade %

Hours worked

Choices

0 20 40 60 80 60 55 45 30 0

Grade %

Hours worked

Choices

0 20 40 60 80 60 55 45 30 0 0 20 40 60 80 60 45 30 15 0

Grade %

Hours worked

Opportunity cost Constant Opportunity Cost

Choices

0 20 40 60 80 60 55 45 30 0

Grade %

Hours worked

Choices

0 20 40 60 80 60 55 45 30 0 0 20 40 60 80 60 45 30 15 0

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Hours worked

Quesiton 2

Question 2 (10 marks)
In February 2018, it was reported that Australia’s solar power capacity could almost double in a year.
a.   Use demand and supply curves to show the doubling of capacity. (3 marks)
b.   Use demand and supply curves to show what is likely to happen to demand over time in response to the capacity increases (see Q2a above). (3 marks)
c.   Use demand and supply curves of the solar powered industry and coal-fired power electricity industry to show what is likely to happen to demand and supply of solar power if the government introduces a tax on coal-fired power electricity. (4 marks)

Question 3

Question 3 (10 marks)
a.     Explain in your own words, using demand and supply curves, the concepts of consumer and producer surplus. (3 marks)
b.     Using demand and supply curves describe and illustrate what would happen to consumer and producer surplus if solar power capacity is increased. (4 marks)
c.     The treasurer, Scott Morrison, has stated that business tax cuts will be good for business and workers. Is this a positive or a normative statement? Provide reasons for your answer (300 words maximum). (3 marks)

Question 4

Question 4 (10 marks)
a.     Complete the table below outlining the demand for hot doughnuts in winter. In your calculations use the midpoint method to calculate the price elasticities. (5 marks)
Price Quantity demanded Total revenue Percent change in price Percentage change in quantity demanded Elasticity value Assessment of Elasticity
($) ($)
0.5 16
1 13
1.5 10
2 7
2.5 4
3 1
b. Do you think the price elasticity of demand for hot doughnuts in summer would be the same as in winter or would it become more elastic or more inelastic? Explain your answer. (3 marks)
c. What would you expect the price elasticity of demand for cigarettes to be? Explain your answer. (2 marks)

Question 5

Question 5 (10 marks)
a i. Complete the cost schedule below for a company operating in a free-market (remember that MC and MR values are placed midway between the output figures):
Output Total Fixed Cost (TFC) Total Variable Cost (TVC) Total Cost (TC) Average total cost Marginal Cost (MC) Total Revenue Average Revenue Marginal Revenue Profit
$ $ (ATC) (TR) (AR) (MR) $
$ $ $ $ $ $
0 100 100
1 220
2 300
3 390
4 530
5 690
(4 marks)
ii.   If the firm is operating in a perfect market where the market price for the good the company produces is $150, how many items should this company produce in order to maximise profit? Explain your answer. (2 marks)
iii.   Graph the average total cost, marginal cost, average revenue and marginal revenue curves. (2 marks)
b.     In your own words explain the concept of diminishing returns and describe what will happen to marginal product, total output and marginal cost when diminishing returns start to occur. (2 marks)

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