Final Exam (Take Home) Spring - 2020: Instructions

Final Exam (Take Home) Spring - 2020
Subject: Microeconomics Submission Day: Saturday

Instructor: Haris Alam Submission Date: 13.06.2020
Program: BBA Submission Time: 06:00PM
Max. Marks: 30
Department of Business Administration

Final Exam (Take Home) – Spring 2020
Instructions:
1. Read and attempt all the questions carefully.

2. Write your answers in a Word file and upload the file before the due date on VLE.
3. Name your Word file in the following format:
(StudentID_Student’sName_Coursename_Instructor’sname_ Spring2020)
4. Use 12 pt. font size and Times New Roman font style along with 1-inch page margins.
5. Follow the requirements of the word limit and the marking criteria while writing your answers.
6. Provide relevant, original and conceptual answers, as this exam aims to test your ability to
examine, explain, modify or develop concepts discussed in class.
7. Do not copy answers from the internet or other sources. The plagiarism of your answers will be
checked through Turnitin software.
8. Do not share your answer with any classmate or member. Otherwise, you will be penalized by
deduction in your marks.
9. Organize your work clearly, neatly, and legibly with page numbers in footer.
10. You are not allowed to change the sequence of questions or any part.
11. Recheck your answers before the submission on VLE to correct any content or language related
errors.
_________________
Instructor's Signature
Page 1 of 3
Question No. 1 Total Marks : 05
The countries of Libya and Egypt are small neighbor countries in the Africa continent. Both
produce fruit and timber. Assume that each country has a labor force of 1200. The following
table gives production per month for each worker in each country.
BASKETS OF FRUIT BOARD FEET OF TIMBER

Libyan workers 10 5
Egyptian workers 30 10
Note: Productivity of one worker for one month.
a. Which country has an absolute advantage in the production of fruit? Which country
has an absolute advantage in the production of timber?
b. Which country has a comparative advantage in the production of fruit? of timber?
c. Sketch the PPF’s for both countries.
d. Assuming no trading between the two, if both countries wanted to have equal
numbers of feet of timber and baskets of fruit, how would they allocate workers to
the two sectors?
e. Show that specialization and trade can move both countries beyond their PPF’s.
On the Forbes 2020 list of the World’s Billionaires; An American, Jeffrey Preston Bezos famously
known as Jeff Bezos ranks at the top with a net worth of U.S $ $151.6 billion. Does this “richest
man in the world” face scarcity, or does scarcity only affect those with more limited incomes
and lower net worth?
Note: Give your analysis in maximum 100 words with reference to literature. Be precise, to
the point and avoid repetition.
Equilibrium is achieved when quantity demanded intersect with quantity supplied. Assume a
product “Mobile Phone” for which supply and demand shifts. You are required to prepare
graphs of each situation given below?
a. Increase in income: Mobile Phone is a normal good.

b. Increase in income: Mobile Phone is an inferior good.
c. Decrease in the price of a substitute for Mobile Phone.
d. Decrease in the price of a complement for Mobile Phone.
e. Increase in the cost of production of Mobile Phone.
f. Decrease in the cost of production of Mobile Phone.
Page 2 of 3
Suppose the demand and supply curves for eggs in the Canada are given by the following
equations:
Qd = 100 - 20P
Qs = 10 + 40P
Where Qd = Millions of dozens of eggs Canadians would like to buy each year; Qs = Millions of
dozens of eggs Canadian farmers would like to sell each year; and P =Price per dozen of eggs.
a. Fill in the following table:

PRICE (PER DOZEN) QUANTITY DEMANDED (Qd) QUANTITY SUPPLIED (Qs)
$ 0.50
$ 1.00
$ 1.50
$ 2.00
$ 2.50
b. Use the information in the table to find the equilibrium price and quantity.
c. Graph the demand and supply curves and identify the equilibrium price and quantity.
Engro Foods (Pvt) Ltd. is a FMCG manufacturer in Pakistan. Its main products are milk, ice-
cream, and flavored juices. Last year the company has sold around 8 million units of milk, 5
million units of ice-cream and 3 million units of flavored juices. The average current market
price of the milk is Rs.100; the ice-cream is 60; and the Juices is Rs.40.
In an attempt to improve revenue, the managers of the company have decided to increase all
prices by 5%. Market research has suggested that the price elasticity of demand for each
product is: Milk: (-) 1.5; Ice-cream: (-) 1.0; Flavored juices: (-) 0.5
You are required to calculate, evaluate and suggest the planned price change on following
situations.
a. Would a 5% price increase have been better for some or all of the products?
b. Would a 5% price reduction have been better for some or all of the products?
c. Should the company retain their current market price? If yes then why? If not then
why not?
d. How Engro Foods (Pvt) Ltd. can maximize their revenue?
Note: You should support any arguments with calculations.

Page 3 of 3
Following is information on the production levels of three different firms. Firm A is currently
producing at a quantity where it is experiencing increasing returns. Firm B is currently
producing at a quantity where it is experiencing diminishing returns. Firm C is currently
producing at a quantity where it is experiencing negative returns.
a. If each of the firms cut back on its labor force, what will happen to its marginal
product of labor? And why?
b. If each of the firms adds to its labor force, what will happen to its marginal product of
labor? And why?
Assume that you are in the business of building houses in United Kingdom. You have analyzed
the market carefully, and you know that at a price of £120,000, you will sell 800 houses per
year. In addition, you know that at any price above £120,000, no one will buy your houses
because the government provides equal-quality houses to anyone who wants one at £120,000.
You also know that for every £20,000 you lower your price, you will be able to sell an additional
200 units. For example, at a price of £100,000, you can sell 1,000 houses; at a price of £80,000,
you can sell 1,200 houses; and so on.
a. Sketch the demand curve that your firm faces.

b. Sketch the effective marginal revenue curve that your firm faces.
c. If the marginal cost of building a house is £100,000, how many will you build and what
price will you charge? What if MC = £85,000?
The End
Wish you best of luck!

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Final Exam (Take Home) Spring - 2020

Subject: Microeconomics Submission Day: Saturday

Department of Business Administration

1. Read and attempt all the questions carefully.

Question No. 1 Total Marks : 05

BASKETS OF FRUIT BOARD FEET OF TIMBER

Note: Productivity of one worker for one month.

Question No. 2 Total Marks : 02

Question No. 3 Total Marks : 05

a. Increase in income: Mobile Phone is a normal good.

Question No. 4 Total Marks : 03

a. Fill in the following table:

Question No. 5 Total Marks : 05

Note: You should support any arguments with calculations.

Question No. 6 Total Marks : 05

Question No. 7 Total Marks : 05

a. Sketch the demand curve that your firm faces.

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