Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

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Wednesday 28 March 2012

Revenue

Concepts of Revenue



Revenue means the sale receipt of the quantity or output produced in a firm.


a.                  Total revenue (TR)

Total revenue (TR) is the value of a firm’s sales. In other words, total revenue refers to the total amount of money that a firm can obtain from the sales of its product. The formula is shown as below:



TR = P x Q



For example, Firm JLQ sells 5000 pair of shoes at the rate of RM50.00. Firm JLQ’s total revenue is



                        TR = P x Q

                        = 50 x 5000

                        = RM250 000.00


 b.                  Average revenue (AR)



Average revenue (AR) is defined as the total revenue per unit output sold. The formula is as shown below:

AR = P
AR = TR/Q

c.                   Marginal revenue (MR)



Marginal revenue (MR) refers to the change in total revenue resulting from a one unit increase in quantity sold. Marginal revenue is equal to the change in total revenue divided by the change in output sold. The formula is as shown below:

MR = change in TR / Change in Q

d.                  Profit



Profit is the difference between the purchase price and the costs of bringing to market.


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

Relationship between Marginal Cost (MC) and Average Cost (AC).





1. Relationship between Marginal Cost (MC) and Average Cost (AC). [based on the above picture]
2. Relationship between Marginal Cost (MC) and Average Variable Cost (AVC). [just change the "AC" to "AVC"]

Example Question : Explain the relationship between marginal cost and average cost. [6 marks]

suggestion answer:
  •  Diagram 2 marks
  • explanation = 4 marks

Saturday 24 March 2012

Cost of Production

Cost of production refers to the expenses incurred by the producer in producing a particular quantity of output. There are 7 types of short-run costs:




Friday 23 March 2012

Law of Diminishing Marginal Returns





Types of Production

Types of Production




Short-run and Long-run Production

Short-run and Long-run Production

factors of production

Factors of Production

  1. Land
  2. Labour
  3. Capital
  4. Entrepreneurship

Definition of Production

INTRODUCTION

This topic discusses all the theories of production. This involves the use of production factors in producing the most effective level. In addition, manufacturers also need to use the correct scale to ensure that the resulting output to fulfill the law of diminishing marginal returns. In this chapter also, we will explain the relationship between cost and output. We will define the cost involved in production process, identify various types of costs and need to analyze short run costs and long run costs. At the end of this chapter, we will explain differentiate between small firm and large firm. 



Definition of production

Production means the process of using the factors of production to produce goods or services. In other words, production means the transformation of inputs into outputs.

Input is refers to those things that a firm buy for use in production process such as land, labour, capital and entrepreneur. Output is refers to what we get at the end of the production process or refers to finished goods.

Thursday 8 March 2012

example final exam : Demand and Supply

Example of final exam questions
Section A; Multiple choice questions



1.                  A market is in equilibrium



A.                  provided there is a surplus of the product

B.                  at all process above the intersection point of the supply and demand curves

C.                  when the amount the producers want to sell is equal to the amount the consumers want to buy.

D.                 whenever the demand curve is downward sloping and the supply curve is upward sloping.



Use the following table to answer question 2 and 3



Quantity demanded
(units)
Price (RM)
Quantity supplied
(units)
1,000
3
700
900
6
750
800
9
800
700
12
850
600
15
900

           

2.                  Based on the data, the market will be in equilibrium if the price is



            A.         RM6.00

            B.         RM12.00

            C.         RM9.00

            D.         RM3.00



3.                  If the price RM12.00, there will be



            A.         an excess supply by 150 units.

            B.         a shortage of supply by 150 units.

            C.         an excess of demand by 850 units.

            D.         a shortage of demand by 700 units.



           

            The following figures are extracted from a supply schedule:

       

Price per unit ( RM )
Quantity supplied               (units)
4.00
1,000
5.00
1,600
6.00
2,000
7.00
2,400



4.                  When the price falls from RM6.00 to RM5.00 elasticity of supply can be expressed as:



A.         2.0                              

A.                  1.75                            

            C.         1.5

            D.         1.2



5.                  The following table refers to the demand and supply of sugar in a given market in a given period of time.

Price of sugar per kg (RM)
Demand for sugar(kg)
Supply for sugar (kg)
1
40
15
2
25
25
3
15
30
4
10
35
5
5
40



The government imposes a maximum price of RM 1 per kilogram. What is the effect of this?



A.                 the supply curve shifts to the left.

B.                 The demand curve shifts to the right.

C.                 There will be shortage of 25 kg.

D.                 There will be surplus of 15 kg. 




7.                  Raies love peanut butter. Raies heard on the news that 50%of the peanut crop in the South has been wiped out, which will cause the price to double by the end of the year. As a result



A.                  Raies is demand for peanut butter will increase by the end of the year.

B.                  Raies is demand for peanut butter increases today.

C.                  Raies is demand for peanut butter falls as he looks for a substitute good.

D.                 Raies decided to give up peanut butter completely.




8.                  If a 10 % increase in the price of sugar results in a 5 % decline in the quantity of sugar sold, the cross elasticity of demand for sugar is



A.                  2.

B.                  -2.

C.                  ½.

D.                 -1/2.



9.              If goods A and B are close substitutes



A.                  then the demand for good A will decrease when the price of good B rises.

B.                  the demand  of good A will increase when the price of good B rises.

C.                  an increase in the price of good B will decrease the demand for good A.

D.                 a change in the price of good A will not affect the demand for good B, but will affect the supply.



10.              If a decrease in income increases the demand for good, then the good is



A.                  a substitute good.

B.                  a complement good.

C.                  a normal good.

D.                 an inferior good.



121              Complementary goods are goods



            A.         that are consumed jointly.

            B.         that are consumed one in a place of the other.

C.         for which demand increase when the price of its complementary goods increase.

D.         for which demand decrease when the price of its complementary goods decrease.



12.              According to the law of supply, there is a direct relationship between quantity supplied and



            A.         the number of sellers.

B.         costs of resources.

C.         technology.

D.         the price of the  good



Section B



1.                  a.         With the aid of a diagram, discuss how a market could achieve equilibrium.                                                                                                                                 (3 marks)

b.         Explain by using appropriate diagrams, the effect on the market for Perodua’s car in each of the following cases:

i.                    an increase in the price of petrol                                           (3 marks)        

ii.                  an increase in consumer’s income                                         (3 marks)

iii.                an increase in the cost of tyre                                                (3 marks)

iv.                 a decrease in using a local labour                                          (3 marks)

  

(TOTAL: 15 marks)




Section C



1.         The demand and supply schedules for watermelons are as follows:

Price
(RM)
Consumer A
(units)
Consumer B
(units)
Supplier S
(units)
Supplier T
(units)
Supplier U
(units)
1.20
29
32
4
8
12
1.40
24
25
10
10
15
1.60
16
22
15
15
20
1.80
11
19
19
17
22
2.00
8
14
23
20
33
2.20
5
9
27
25
35



i.                    Calculate the value of total market demand and total market supply.                                                                                                                                 (6 marks)



ii.                  Draw the market demand curve and market supply curve and label it DD1 and SS1.                                                                                                        (5 marks)



iii.                What is the equilibrium price and quantity?                                      (4 marks)



iv.                 Assuming that supplier T has gone and a new consumer     C enters the market of watermelons, and demand the amount of watermelons similar like consumer A. Draw the new market demand curve and market supply curve and label it DD2 and SS2. (show your working)                                                    (9 marks)



v.                   Explain what has happened to the new market demand and supply curves?                                                                                                                       (6 marks)



[Total : 30 marks]