Economics Paper 2, Nov/Dec. 2011

Questions:	1	2	3	4	5	6	7	8	9	10	11	12	Main

General Comments
Weakness/Remedies
Strength

Question 1

The cost function of a firm which produces plastic plates is shown in the table below.
Use the information in the table to answer the questions that follow:

Output (in cartons)	Total Valuable Cost (TVC)	Total Cost (TC)	Average Cost (AC)	Marginal Cost (MC)
0	-	100	-
1	250	350	350	-
2	450	P	275	200
3	575	675	R	125
4	600	700	175	25
5	675	Q	155	75
6	825	925	S	150

(a) (i) What is Average Fixed Cost (AFC)?
(ii) Calculate the average fixed cost at output levels 1 to 6.

(b) Calculate the values P, Q, R and S.

(a) (i) What will be the total revenue of the fanner if the price of cashew nuts is $40 per tonne?
(ii) What will be the total revenue of the farmer at the new equilibrium as the demand curve shifts to
D₁D₁

(b) What change occurs in the total revenue of the farmer when the price rises from $40 to $80 per tonne.
.
(c) Use the figure in the diagram to determine
(i) the elasticity of supply for cashew nuts;
(ii) interpret your answer in (c)(i)
(d) Give two reasons for the shift in the demand curve from DO to D₁D₁?

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Observation

A good number of candidates who attempted this question scored good marks.
Generally, candidates were able to provide correct answers for the (a) and (b) parts of the question. The (c) part of the question was however not well answered. Most of the candidates could not state why the Average Fixed Cost declines as output increases.

These candidates failed to state that: