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ECS2601 ASSESSMENT 6 2023
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ECS4862 Assignment 3 (COMPLETE ANSWERS) 1 2024 - DUE 16 August 2024
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ECS2601 ASSESSMENT 6 2023
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Summary Microeconomics, Institutions and Welfare
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Price ceilings are only effective if the black market is prevented.
Select one:
True
False
Question text
Which of the following statements is correct regarding the perfectly competitive industry?
a. In the long run, firms’ economic profit can take any value.
b. Due to free entry and exit, the level of production efficiency for a firm is greater in the
short run than in the long run.
c. Firms will always make positive economic profit in the long run, unlike in the short run.
d. A firm making zero economic profit is essentially covering all the opportunity costs of
production.
Read the following excerpt from Business Tech below and consider the Profit Payoff
matrix to answer the question that follow:
Competition Commission charges Wesbank and Toyota for collusion
“The Competition Commission has referred motor vehicle finance groups FirstRand Bank,
Wesbank, and Toyota Financial Services South Africa Limited (TFS) to the Competition
Tribunal for prosecution on allegations of dividing the market by allocating customers or
suppliers.
The Commission’s investigation revealed that Wesbank and TFS entered into an
agreement to divide markets by allocating customers or suppliers in the market for the
provision of vehicle finance in contravention of section 4(1)(b)(ii) of the Competition Act.
The motor vehicle finance market includes offering vehicle finance, leases, and
dealerships financing.
“FirstRand Bank Limited (FirstRand), through its WesBank division, and TFS are involved in
the provision of vehicle finance services. They are therefore supposed to compete. They,
however, concluded a shareholder agreement which contains clauses that prevent them
from competing,” the commission said.”
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Assume that the competition commission has not found out about the collusion of
Toyota and Wesbank and no charges currently exist. Does the possibility of one company
cheating exist, if so why?
a. No, because there is no incentive to cheat in this instance since profits will always
remain low when Toyota or Wesbank operates individually.
b. No, because a company stand to gain more by providing vehicle finance at the collusion
level and not at the cournot level.
c. Yes, because a company stand to gain more by providing vehicle finance at the cournot
level and not at the collusion level.
d. It is impossible to say since more information is needed.
Question text
A firm faces the following average revenue (demand) curve:
P = 120 – 0.02Q
where Q is weekly production and P is price, measured in cents per unit. The firm’s
cost function is given by C = 60Q + 25,000. Assume that the firm maximizes profits.
What is the level of Profit?
a. 20 000 cents per week.
b. 8 750 cents per week.
c. 377 800 cents per week.
d. 25 000 cents per week.
A firm producing five units of output has an average total cost of R100 and has to pay R250 to
its fixed factors of production. The average variable cost is …
a. R100
b. R200
c. R250***
d. R50 *****
BMZ ACADEMY 061 262 1185/068 053 8213/0717 513 144
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A small city has a number of hot dog stands operating throughout the CBD area. Suppose that
each vendor has a marginal cost of R1,50 per hot dog sold and no fixed cost. Suppose the
maximum number of hot dogs that any one vendor can sell is 100 per day.
If each vendor sells the maximum 100 hotdogs per day and demand for hot dogs is given as
Q(d) = 4400 – 1200P, what is the total number of vendors in the market in the short run?
a. 20 vendors.
b. 2 vendors.
c. 10 vendors.
d. 15 vendors.*****
A small city has a number of hot dog stands operating throughout the CBD area. Suppose that
each vendor has a marginal cost of R1,50 per hot dog sold and no fixed cost. Suppose the
maximum number of hot dogs that any one vendor can sell is 100 per day.
If the vendor market is perfectly competitive, will the price remain R2 for a hot dog?
a. Yes, remain at current price of R 2,00
b. No, change to R 1,00
c. No, change to R2,50
d. No, change to R1,50
The benefit of a subsidy accrues mostly to consumers (producers) if the ratio of the elasticity
of demand to the elasticity of supply is large (small) in absolute value.
Select one:
True
False
Thabang is willing to pay R20 for essay editing, and Tshego is willing to edit essays for
R10. The perfect competitive market price for editting is R14. Calcuate total surplus.
a. R11
b. R5
c. R10
d. R9
A firm faces the following average revenue (demand) curve:
P = 120 – 0.02Q
where Q is weekly production and P is price, measured in cents per unit. The firm’s
cost function is given by C = 60Q + 25,000. Assume that the firm maximizes profits.
If the government decides to levy a unit tax of 14 cents per unit on this product, what will be
the new level of profit?
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