Quantity AFC AVC ATC 300 4 3 7 400 3 1 4 500 2.4 2.6 5 Calculate total profit at a quantity of 500 units assuming that MR = $7. [3] MR = P = AR…$7 5 = $2….times 500 units = $1,000 – Would the firm be productively efficient at an output of 350 units? Explain your answer and refer to the data in Table 3. [3] No since ATC is still falling at Q = 400. ATCmin is prod eff. Diagram 2 below illustrates a certain type of firm. Refer to the values in the diagram and answer the (c) questions. Calculate total profit assuming that the firm is profit-maximising. [2] ($10.5 6) x 300 = $1,350 – The firm switches to maximising revenue. Calculate the new level of profit. [2] Revmax is where MR = 0, i.e. Q is 400 units. ($8.5 5.8) x 400 = $1,080 – Calculate the PED for this operation, i.e. the PED value when the firm goes from profit-maximising to revenue-maximising. Explain why the PED value must be greater than one. [4] -2/10.5 = -19% +100/300 = +33.33% ΔP ΔQ PED: 33.33/-19 = │1.75│ Expl: the change in price is moving along the elastic portion of the demand curve…towards where PED = is at a price of $8.5, a quantity of 400 units and where MR = 0. │1│.This ECONOMICS STANDARD LEVEL PAPER 1 1. (a) Carefully distinguish between public and merit goods and explain why both are examples of market failure. [10 marks]
Quantity AFC AVC ATC 300 4 3 7 400 3 1 4 500 2.4 2.6 5 Calculate total profit at a quantity of 500 units assuming that MR = $7. [3] MR = P = AR…$7 – 5 = $2….times 500 units = $1,000 Would the firm be productively efficient at an output of 350 units? Explain your answer and refer to the data in Table 3. [3] No since ATC is still falling at Q = 400. ATCmin is prod eff. (c) Diagram 2 below illustrates a certain type of firm. Refer to the values in the diagram and answer the questions. Calculate total profit assuming that the firm is profit-maximising. [2] ($10.5 – 6) x 300 = $1,350 The firm switches to maximising revenue. Calculate the new level of profit. [2] Revmax is where MR = 0, i.e. Q is 400 units. ($8.5 – 5.8) x 400 = $1,080 Calculate the PED for this operation, i.e. the PED value when the firm goes from profit-maximising to revenue-maximising. Explain why the PED value must be greater than one. [4] ΔP -2/10.5 = -19% ΔQ +100/300 = +33.33% PED: 33.33/-19 = │1.75│ Expl: the change in price is moving along the elastic portion of the demand curve…towards where PED = │1│.This is at a price of $8.5, a quantity of 400 units and where MR = 0. ECONOMICS STANDARD LEVEL PAPER 1 1. (a) Carefully distinguish between public and merit goods and explain why both are examples of market failure. [10 marks]
Correctives-mocks-2014-all-papers1.docx