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 Economics Paper 2, Nov/Dec. 2011
 Questions: 1 2 3 4 5 6 7 8 9 10 11 12 Main
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.

(c)        Why does the average fixed cost decline as output increases?

(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;
(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:

(c) Average Fixed Cost (AFC) declines because the Total Fixed Cost (TFC) is divided  by increasing values of output.