Question1 (5marks) What is opportunity cost?Give an example to explain. Question2 (5marks) Why is…

Question1 (5marks)

What is opportunity cost?Give an example to explain.

Question2 (5marks)

Why is marginal revenue always less than price for a monopolist but equal to price for a perfectly competitive firm?

Question3(10marks)

Suppose you own a collection of signed NicolasCagememorabilia.You decide to set up a display in your garage and chargepeople in the neighbourhood to see the collection.The demand curve to see this collection is as shown below.

a)What price should you charge if your goal is to maximise your revenues from tickets sold?b)On a graph, show the inelastic and elastic regions of the demand curve.

Question 2 (10marks)

The buyer’s side of the market for theme park tickets consists of two consumers whose demands are as shown in the diagrams below. a)Graph the market demand curve for this marketb)Calculate the total consumer surplus in the theme park market if tickets sell for $24 each.

Question 3 (10marks)

John Jones owns and manages a café in College-town whose annual revenue is $10,000. Annual expenses are as follows:

Labour

$4000

Food & Drink

$1000

Electricity

$200

Vehicle Lease

$300

Rent

$1000

Interest on Loan

$2000

a)Calculate John’sexplicit cost andannual accounting profit.b)John could earn $2,000 per year as a recycler of aluminium cans, buthe prefers to run café. In fact, he would be willing to pay up to $550 per year to run the café rather than to recycle. Is the café making an economic profit? Should John stay in the café business?c)Suppose the café’s revenues and expenses remain the same, but recyclers’ earnings rise to $2,200 per year. Is the café still making an economic profit?