question, excluding graphs, tables and reference list)
It is a progressive assignment based on topics studied in weeks 5-8 covering chapters 6 to 10.
Please attempt each question on a weekly basis which will prevent you from asking for extensions.
Objectives
This assessment item relates to course learning outcomes 4 – 8 as listed in the course profile.
Question 1:
Refer to Chapter 6
(a) Explain with reasons as to why additional advertising (non-price competition) will lead to a smaller and smaller increase in sales of that product. (2 marks)
(b) In the table below an oligopolist firm faces two demand schedules. The current price is given as $185.
Competitors price fixed: Quantity Demanded
Price ($)
Competitors follow: Quantity Demanded
Total Revenue
Marginal Revenue What would the demand curve be under the kinked demand curve hypothesis? Illustrate and explain. (1 mark)
(ii) Plot the marginal revenue curve corresponding to the kinked demand curve and explain. (2 marks)
(iii) Given that Marginal Cost is $150 at every level of output. Copy the above table and
calculate TR and MR. Determine the profit- maximising level of output and plot on the graph. (2 marks) Total = 7 marks
Question 2:
Refer to Chapters 7 & 8
(a) Assume that a firm discharges waste into a river. As a result, the marginal social costs (MSC) are greater than the firm’s marginal (private) costs (MC). The table below shows how MC, MSC, AR and MR vary with output. Assume that the marginal private benefit (MB) is given by the price (AR). Assume also that there are no externalities on the consumption side, and that therefore MSB = MB. Study the table and answer the follo