Question 1

1 (a)

There are five Production Alternatives for the production of food and clothing. Combination
E shows that all production have been utilised to produce food. No clothing were produced.
This means it production were allocated to produce food,the maximum total of food that can
be produced is 16 units. No clothing can be produced.

1 (b)

A choice involves opportunity cost. for each choice made,there are advantages and at times
losses. Opportunity cost is the value of the next best alternative choice which was foregone.
Country X must reduce production of the good to get additional other good.

refer the table from point C to point D: The coodrinate point C (8,14) and D (12,8).
Therefore, the gradient from point C to point D
Y 8 -14
=
X 12-8

Y -6
=
X 4
= -1.5

This means that in order to increase 1 unit of food, 1.5 unit of clothing must be sacrificed or
in other words, the opportunity cost to product 1 additional unit of food is equal to 1.5 unit of
clothing.
1 (c)

Forgoing one activity or product because of a decision to continue another activity or product
is called opportunity cost. It is the value of a product which is foregone by society because
another product is preferred.

refer the table country X from point C to point B: The coodrinate point C (8,14) and B (4,18).
Therefore, the gradient from point C to point B
Y 18-14
=
X 4-8
Y= 4
X -4
= -1

This means that in order to increase 1 unit of food, 1 unit of clothing must be sacrificed or in
other words, the opportunity cost to product 1 additional unit of food is equal to 1 unit of
clothing.

1 (d)

Based on point B, country X production efficiency with full employment can be produced 4
units food and 18 units clothing. However , if country X producing 4 units of food and 16
units of clothing, it is not an efficient point as some of the factors of production are not
utilised. This is because in reality, a society is unable to utilise all of its factors of production.
For example, when there is unemployment not all factories operate at full capacity.
Unemployment causes production to be lower than its maximum level, which is situation is
below the level production possibility curve (PPC).
Question 2

2 (a)

SUPERNORMAL PROFIT FOR SUPERNORMAL PROFIT FOR

MONOPOLISTIC MONOPOLY

FIGURE 9.6(a) FIGURE 10.6(a)

Refer to the graph given, one similarity from the illustration supernormal profit for monopoly
market figure 9.6(a) and monopolistic figure 10.6(a) competitive is the demand curve which
shows the relationship between price and quantity will be sloped downward AR = D. While
the difference is demand curve monopolistics flatter than that of a monopoly.
2 (b)

Market Structure can be defined as a classification of producers according to the different

types of markets based on specific characteristics. These characteristics are the number of
firms in the industry and the level of freedom the firms has in making decisions.

One of the extreme types of market structures is a perfectly competitive market (perfect
competition). In this type of market structure , we have many buyers and sellers interacting in
the market with perfect information, selling homogeneous products, and no barries to enter
and exit the industry. While the fourth market is the oligopoly market. Oligopoly market has
few sellers and buyers. The firms have a strong influence on one another.

There are also have many difference between perfectly competitive market and oligopoly
market, one of them is perfectly competitive market firms are free to enter and exit from the
market. New firms can freely enter the market and existing firms can freely leave. Profits will
encourage new firms to enter the market whereas firms facing losses will leave the market.
While oligopoly market are the barries for new firms entering the oligopoly industry. This
does not mean that new firms cannot enter the market but said firms will face obstacles, such
as, requiring a large capital and facing stiff competition from the well established firms.

Question 3

3 (a)

i) Demand curve = DD , Supplier curve = SS , Y= Price , X = Quantity

 ii) Table A the situation in the market when the price is at RM1, quantity demand 80
units higher that quantity supply 30 units. There will be excess demand (shortage) at
any price level lower than the equilibrium price. Consumers would be willing to pay a
higher price in an attempt to get the desired quantities. As price increases, the supplier
will suplly more and the equilibrium level is reached.

While when the price is at RM4, quantity supply 120 units higher than quantity
demand 20 units. There will be an excess supply(surplus). The seller will react to this
situation by lowering the price in order to sell more. As the price decrease, consumers
will demand more in quantity and this mechanism will lead to an equilibrium level.

3 (b)

The price of goods in the market is determined by demand and supply. The market is said to
be in equilibrium when sellers and buyers do not have any incentive to increase the agreed
quantity of goods charged at a specific price. Equilibrium occurs when quantity supplied is
equal to the quantity demanded.

Qd = Qs

2200 - 200P = 800 + 500P

2200 – 800 = 200P + 500P

1400 = 700P

P = 1400/700

= 2(Equilibrium Price)

Qd = 2200 – 200P

= 2200 – 200(2)

= 1800

Qs = 800 + 500P
 = 800 + 500(2)

= 1800(Equilibrium Quantity

Question 4

4 (a)

Profit is achieved when the positive difference between TR and TC is at its maximum.

Profit = Total Revenue (TR) – Total Cost (TC)

4 (b)

Total cost (TC) is per following :

Average Cost (AC) = Total Cost (TC) / Quantity (Q)

Total Cost (TC) = Average Cost (AC) x Quantity (Q)

= RM20 X 10 units

= RM200

4 (c)

Total Revenue (TR) is the value of a firm’s sales.

Total Revenue (TR) = Price (P) x Quantity (Q)

= RM50 x 10 units

= RM500

4 (d)

Profit is achieved when the positive difference between TR and TC is at its maximum.

Profit = Total Revenue (TR) – Total Cost (TC)

= RM500 – RM200
 = RM 300 (Supernormal Profit)

4 (e)

Assume firm operates in perfectly competitive market

References

1. BDEK1103 Introductory Microeconomics_sMay19 (rs & MREP).pdf