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ECO 101 - Assignment III

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26 views

ECO 101 - Assignment III

Uploaded by

Sayeeda Jahan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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East West University

Semester: Spring’ 2021; ECO 101 (S07);


Assignment – III
Due on 25 April, 2021

The Costs of Production

1. This chapter discusses many types of costs: opportunity cost, total cost, fixed cost,
variable cost, average total cost, and marginal cost. Fill in the type of cost that best
completes each sentence:

a. What you give up in taking some action is called the ______.


b. _____ is falling when marginal cost is below it and rising when marginal cost is above
it.
c. A cost that does not depend on the quantity produced is a(n) ______.
d. In the ice-cream industry in the short run, ______ includes the cost of cream and sugar
but not the cost of the factory.
e. Profits equal total revenue minus ______.
f. The cost of producing an extra unit of output is the ______.
(6 marks)

2. Nimbus Company makes brooms and then sells them door to-door. Here is the
relationship between the number of workers and Nimbus’s output during a given
day:

a. Fill in the column of marginal products. What pattern do you see? How might you
explain it?

Page 1 of 3
East West University
Semester: Spring’ 2021; ECO 101 (S07);
Assignment – III
Due on 25 April, 2021

b. A worker costs BDT100 a day, and the firm has fixed costs of BDT200. Use this
information to fill in the column for total cost.
c. Fill in the column for average total cost. (Recall that ATC = TC/Q.) What pattern do
you see?
d. Now fill in the column for marginal cost. (Recall that MC = ΔTC/ΔQ.) What pattern do
you see?
e. Compare the column for marginal product with the column for marginal cost. Explain
the relationship.
f. Compare the column for average total cost with the column for marginal cost. Explain
the relationship.
(12 marks)

The theory of Consumer Choice

3. Compare the following two pairs of goods:


• Sprite and Fanta
• Skis and ski bindings
a. In which cases are the two goods complements?
b. In which case are they substitutes?
c. In which case do you expect the indifference curves to be fairly straight? In which
case do you expect the indifference curves to be very bowed?
d. In which case will the consumer respond more to a change in the relative price of the
two goods?
(4 marks)

4. A college student has two options for meals: eating at the dining hall for BDT 6 per
meal, or eating a Star Kabab for BDT 1.50 per meal. Her weekly food budget is BDT
60.
a. Draw the budget constraint showing the trade-off between dining hall meals and Star
Kabab. Assuming that she spends equal amounts on both goods, draw an indifference
curve showing the optimum choice. Label the optimum as point A.
b. Suppose the price of a Star Kabab now rises to BDT 2. Using your diagram from part
(a), show the consequences of this change in price. Assume that our student now
spends only 30 percent of her income on dining hall meals. Label the new optimum as
point B.
c. What happened to the quantity of Star Kabab consumed as a result of this price
change? What does this result say about the income and substitution effects? Explain.
d. Use points A and B to draw a demand curve for Star Kabab. What is this type of good
called?

Page 2 of 3
East West University
Semester: Spring’ 2021; ECO 101 (S07);
Assignment – III
Due on 25 April, 2021

(8 marks)

Best of Luck!

Page 3 of 3

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