EAST WEST UNIVERSITY

NAME: MD MEHEDI HOSSAIN

ID: 2024-1-91-007
COURSE: EMBA-504
SECTION: 1
SPRING 2024
Question 1:
Both you and your friend like potatoes (b/weck) and rice (lb/weck) but you like potato more than
rice and your friend prefer more rice than potato. Draw hypothetical indifference curves of both
(hint: put potato on vertical axis and rice on horizontal axis).

Answer to the Question no 1:

This graph illustrates the indifference curves for two individuals with different preferences for
potatoes and rice. The blue curve represents the individual with a preference for potatoes, indicated
by the steeper slope. Conversely, the green curve portrays the individual with a preference for rice,
as shown by the flatter slope.

These curves demonstrate how each individual values the two goods differently, highlighting the
idea of marginal rate of substitution and consumer preferences.

since I prefer potatoes more than rice, my indifference curve will slope downwards from left to right,
stipulate that I am willing to give up some rice to gain more potatoes while remaining indifferent.

For my friend, since they prefer rice more than potatoes, their indifference curve will slope
downwards from right to left, stipulate that they are willing to give up some potatoes to gain more
rice while remaining indifferent.

Here's a description of the graph:

• X-axis (horizontal): Represents the quantity of rice
• Y-axis (vertical): Represents the quantity of potatoes

My indifference curve:
• Slopes downwards from left to right.
• Indicates that you prefer more potatoes over rice.

As I move along the curve, I giving up some rice to gain more potatoes while staying equally
satisfied (indifferent).

My friend's indifference curve:

Slopes downwards from right to left.
Indicates that my friend prefers more rice over potatoes.

As they move along the curve, they're giving up some potatoes to gain more rice while remaining
equally satisfied (indifferent). Both curves depict the combinations of potatoes and rice that provide
equal levels of satisfaction for me and my friend, respectively.
My friend's indifference curve:
Slopes downwards from right to left.
Indicates that my friend prefers more rice over potatoes.

As they move along the curve, they're giving up some potatoes to gain more rice while remaining
equally satisfied (indifferent). Both curves depict the combinations of potatoes and rice that provide
equal levels of satisfaction for me and my friend, respectively.
Question 2:
Mr. Arif, a lawyer of a law firm, earns Tk.60,000 per month. He is contemplating setting up his own
law practice based on experiences gained in his firm. He estimates that renting an office would cost
Tk.10,000, hiring a legal secretary would cost Tk.20,000; required office equipment would cost
Tk.15,000; electricity, telephone, would cost another Tk.5000/month. Mr. Arif estimated that his
total revenue for the month would be Tk100,000 and he is indifferent between keeping his present
occupation in a big firm opening his new law office.

(a) Calculate explicit, implicit, accounting and Economic costs

(b) Should Mr Arif go head and start his own practice?

Answer to the Question No- 2 (a):

(a) Calculation of Costs:

Explicit Cost: 10,000 +20,000+15,000+5000 = 50,000 (office rent +legal secretary +equipment
+electricity)

Implicit Cost: Implicit Costs: Tk.60,000, representing the opportunity cost of Mr. Arif’s foregone
salary by leaving his job.

Economic Cost: (Explicit Cost + Implicit Cost) = 50,000 + 60,000 = 110,000/-

Answer to the Question No- 2 (b):

b) No, if his goal is to maximize profit. Profit= R-C = 100000-110000= -10,000.
Question 3:
Show the impact of increase or decrease in the fuel prices on agricultural commodity, say, paddy,
by using demand and supply diagrams. What would determine the degree of changes in
equilibrium condition?

Answer to the Question No- 3:

Demand Curve (Left Diagram):

• The blue line represents the demand curve, which shows how demand varies with price
under typical conditions.

Supply Curve (Right Diagram):

• The green line is the original supply curve.
• The red dashed line indicates the supply curve after a fuel price increase, shifting left due
to higher production costs.
• The orange dashed line shows the supply curve after a fuel price decrease, shifting right
as production costs decrease.
• These diagrams help illustrate how the quantity demanded and supplied of paddy would
respond to changes in price under different scenarios.
Question 4:
Why MC = AC at the lowest AVC and AC?

Answer to the Question No- 4:

Marginal Cost (MC) is the cost of producing one additional unit. Average Cost (AC) is the total
cost per unit produced.
MC intersects AC at its lowest point because at that point, producing another unit would start
increasing the AC, stipulate that MC equals AC exactly at the lowest points of AVC and AC.

Here's the graph illustrating the relationship between Marginal Cost (MC) and Average Cost (AC):

• The blue line represents the Average Cost (AC) curve, which typically decreases initially
and then starts increasing.
• The red line is the Marginal Cost (MC) curve. It intersects the AC curve at its lowest point,
which is a fundamental idea in economics stipulate that the cost of producing one more
unit equals the average cost per unit at that point.
• The black dot marks the point where MC equals AC, occurring at the minimum of the AC
curve.
• This intersection is crucial because it signifies the most efficient scale of production
where the additional cost of producing one more unit is the same as the average cost of
all units produced.
Question 5:
What are the causes of recent rise in the prices of essential commodities?

Answer to the Question No- 5:

The recent rise in the prices of essential commodities can be attributed to various factors,
including:

Supply Chain Disruptions: Disruptions in the global supply chain due to the covid-19 pandemic
have led to shortages of raw materials and delays in transportation, causing prices to increase.
Increased demand: economic recovery in some regions, coupled with pent-up demand, has led to
increased consumption of essential commodities, putting pressure on supply and driving prices up.

Weather Events: Extreme weather events such as

droughts, floods, and storms can damage crops and
disrupt agricultural production, leading to lower yields
and higher prices for food commodities.

Rising Energy Costs: Higher energy prices, including fuel and electricity, can increase production
and transportation costs, which are eventually passed on to consumers in the form of higher prices
for essential goods.

Currency Fluctuations:
Fluctuations in currency exchange rates can impact the cost of
imported goods and commodities, affecting their prices in local
markets.

Trade Policies and Tariffs: Changes in trade policies, tariffs, and export restrictions imposed by
governments can affect the availability and cost of essential commodities in the global market,
leading to price fluctuations.

Speculation: Speculative trading in commodity markets can also contribute to price volatility, as
traders anticipate future supply and demand dynamics and adjust their positions accordingly.

Geopolitical Tensions:
Geopolitical tensions, conflicts, and disruptions in key producing
regions can lead to supply disruptions and contribute to price increases
for essential commodities.

Overall, a combination of these factors, along with others, contributes to the recent rise in the prices
of essential commodities, impacting consumers and economies worldwide.