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INTRODUCTORY ECONOMICS FOR ENGINEERING

ECON 1550

Group Assignment

Submission Rules:

1. Handwritten assignment 2. A4 size white paper with cover page 3. Equal participation in writing answers 4. For those who do not belong to any group,

they are required to do this assignment

individually

Group Members: Max 5 students/Group

Submission Date: 28th

April, 2015; Class Time

Note: Late submission will not be entertained!

Question 1:

The production possibilities curve below shows the hypothetical relationship between the production of guns

(national defense) and butter (social goods) in an economy.

Combination Guns Butter

A 0 4

B 14 3

C 26 2

D 36 1

E 44 0

(a) What is the marginal opportunity cost of producing the second unit of butter?

(b) What is the total opportunity cost of producing the second unit of butter?

(c) What is the marginal opportunity cost of producing the third unit of butter?

(d) What is the total opportunity cost of producing the third unit of butter?

Question 2:

A production possibilities table for two products, grain and airplanes, is found below. Usual assumptions

regarding production possibilities are implied. Grain is measured in metric tons and airplanes are measured

in units of 1,000.

Combination Grain

(metric tons) Airplanes (1,000s)

A 0 7

B 14 6

C 26 5

D 36 4

E 44 3

F 50 2

G 54 1

H 56 0

(a) Using the below graph construct a production possibilities curve from this information placing grain on

the vertical axis and airplanes on the horizontal axis.

(b) What is the opportunity cost of producing the first unit of airplanes? The marginal opportunity cost of

producing the fourth unit of airplanes?

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Question 3:

A firm has the choice between producing product A, B, or C. In producing the products the firm faces a weekly

cost of $10 for product A, $130 for product B and $200 for product C. The prices received for each product

at different quantities are listed in the table below.

Output Product A Product B Product C Profit A Profit B Profit C

5 $3.00 $15.00 $35.00 _____ _____ _____

10 2.00 12.00 20.00 _____ _____ _____

15 1.25 9.00 10.00 _____ _____ _____

(a) Compute the firms profit for A, B, and C and enter this data into the table. (b) Which product will the firm choose to produce and how much output will maximize profit?

Question 4:

Based on the determinants of elasticity, explain what the price elasticity of demand of the following products

would be: (a) ballpoint pens; (b) Crest toothpaste; (c) diamond rings; (d) sugar; and (e) refrigerators.

Question 5:

Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in

column 2. Complete the table and answer the questions.

(1) Total

product

(2) Total

var. cost

(3) Total cost

(4)

AFC

(5)

AVC

(6)

ATC

(7)

MC

0 $ 0 $ 40 $_____ $_____ $_____

1 55 _____ _____ _____ _____ $_____

2 75 _____ _____ _____ _____ _____

3 90 _____ _____ _____ _____ _____

4 110 _____ _____ _____ _____ _____

5 135 _____ _____ _____ _____ _____

6 170 _____ _____ _____ _____ _____

7 220 _____ _____ _____ _____ _____

8 290 _____ _____ _____ _____ _____

(a) At a product price of $52, will this firm produce in the short run? Explain. What will its profit or loss

be?

(b) At a product price of $28, will this firm produce in the short run? Explain. What will its profit or loss

be?

(c) At a product price of $22, will this firm produce in the short run? Explain. What will its profit or loss

be?

Question 6:

(a) The long-run industry supply curve in a constant-cost industry graphs as a horizontal line. Explain.

(b) What is the relationship between the long-run supply curve in a constant-cost industry and elasticity?

Question 7:

What is GST? Explain the phenomena of imposing GST in Malaysia.