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COVER PAGE

PBA4801

ECONOMICS FOR MANAGERS

ASSIGNMENT 1 14 APRIL 2021

STUDENT NAME:

STUDENT NUMBER:

QUESTION MAX MARK MARK %

1 25

2 25

3 25

TOTAL 75
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Question1 [25 Marks]

When analysing the firm’s behaviour as a business economist, it is often important to

understand the total revenue, costs and margin analysis.

a) Explain using a relevant diagram how the price faced by a profit-maximising

competitive firm compare to its marginal cost? [5 Marks]

b) Explain using relevant graphs how profit-maximising competitive firm decide to shut
down? [5 Marks]

c) When does a profit-maximising competitive firm decide to exit a market? [5 Marks]

d) As a business manager, use relevant diagrams as well as microeconomic theory,

discuss why competitive firms stay in business if they make zero profit? [10 Marks]
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Question 2 [25 Marks]

Business economists us the term tax incidence to refer to the distribution of a tax burden. As
such, we can analyse the incidence of a tax by using the tools of supply and demand.

a) Suppose a government imposes a tax of ZAR1.00 per bottle on sellers of an industrial

detergent. Explain three dimensions in which you can explain the effects of this tax?
What are the implications of such a tax? [12.5 Marks]

b) A government unveiled a new subsidy on public rail transport in a country. Critically

analyse the three dimensions in which the effect of the subsidy can be felt by all the
actors in the sector. [12.5 Marks]
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Question 3 [25 Marks]

Monopolies cause inefficiencies and a lot of deadweight losses. In some cases, these
inefficiencies can be mitigated through price discrimination by the monopolist, but at other
times they call for policy makers to take an active role. Describe the ways through which
policy makers can respond to the inefficiencies caused by monopolies in an economy. List
potential problems associated with each of these policy response mechanisms. [25 Marks]
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List of References