QUESTION 1

1. Why is it important to differentiate between explicit and implicit cost? 1 Mark
2. What is the significance of the long run? 1 Mark
3. Classify the following costs as explicit or implicit. Explain your answer

• IBM spent 1 billion on advertising expenditure
• Jim who owns a trucking business, spends four hours every weekend cleaning his trucks
• Alice used 50 percent of her savings to start her fashion business.
• BHP paid interest on company issued bonds

0.5 * 4 = 2 Marks

QUESTION 2

1. Numerically represent and explain marginal product of labour. 1.5 Marks
2. Why is it important for a business to achieve increasing marginal product of labour? 1.5 Marks
3. Graphically represent and explain how a change in marginal cost will affect your average total cost. 1.5 Marks
4. Explain using the profit equation, at which point of the marginal cost and average total cost relationship will a firm's total profit start to decline.1.5 Marks

QUESTION 3

1. 1. Graphically represent and explain the demand, total revenue, marginal revenue and average revenue curves of a price-taking firm. 2 Marks
   2. Graphically represent and compare the demand curves of a monopoly and monopolistic competitive firm. 1.5 Marks
   3. Graphically represent normal profit. Explain why normal profit is the minimum required for a firm to keep operating in the long run. 2 Marks
   4. Why is a perfectly competitive market structure unlikely to exist in the real world? 1 Mark
   5. Why does the share market closely reflect a perfectly competitive market? 1 Mark

QUESTION 4

John' business is making an economic lost. How can John engage in loss minimization behavior in the short run? 1.5 Marks

QUESTION 5

A manufacturer must decide what level of output is profit maximising quantity. Graphically represent and explain how the manufacturer can use marginal analysis to decide on this level of quantity. 2 Marks

QUESTION 6

1. Assume Frank owns a caf along Chapel Street, where there are 10 other similar cafes within walking distance. What type of market structure is Frank in.? Explain. 1 Mark
2. Explain four ways Frank can try to maximise his chances of making an economic profit in the short run. 2 Marks
3. Is it possible for Frank to make economic profit in the long run? Explain. 1 Mark
4. What are Frank's option(s) if economic loss remains in the long run? 1 Mark

QUESTION 7

1. Which of the four-market structure has the highest barriers to entry? Explain. 1 Mark
2. Provide two examples of barriers to entry common in an oligopoly market structure. 1 Mark
3. Define and explain why game theory is use to analyse a firm in an oligopoly market. 1 Mark
4. Use the game theory matrix to illustrate a strategic decision you made recently. 2 Marks