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Department of Agricultural and Plantation Engineering Faculty of Engineering Technology The Open University of Sri Lanka

This document provides instructions for a tutor marked assignment in economics and marketing for engineers, including 4 questions to answer related to rent ceilings, taxes, externalities, and production costs and profits for an inter-lock paving block factory. Students are directed to show calculations, use diagrams, cite sources, and submit their work by a specified deadline.

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DK White Lion
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93 views2 pages

Department of Agricultural and Plantation Engineering Faculty of Engineering Technology The Open University of Sri Lanka

This document provides instructions for a tutor marked assignment in economics and marketing for engineers, including 4 questions to answer related to rent ceilings, taxes, externalities, and production costs and profits for an inter-lock paving block factory. Students are directed to show calculations, use diagrams, cite sources, and submit their work by a specified deadline.

Uploaded by

DK White Lion
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Department of Agricultural and Plantation Engineering

Faculty of Engineering Technology


The Open University of Sri Lanka

AGM4307 Economics and Marketing for Engineers 2019


Tutor Marked Assignment (TMA-II)
Last Date of Submission: 10/02/2020
 Answer all four (04) questions
 Deadline for this assignments are fixed & strict
 Both Typed & handwritten submissions will be accepted
 Use the principles and basic facts in the lesson materials and collect information from
external sources Do not copy the text directly from lesson materials
 All sources (academic books, journal articles, newspaper articles, material from the
Internet etc ) must be cited in the main text of your assignment itself
 Follow any standard format (Ex Harwad, IEE) used for writing the Bibliography/References
 Please keep a copy of your assignment for further reference
 Don't be hesitate to ask for help - however do so well before the deadline
 For further information please contact the course coordinator at 0112881442

1. The elected officials in the Western Provincial council are concerned about the exploitative
rents being charged to university students. The town council is expecting the imposition of a
rent ceiling of Rs. 1500 per month per student on rooms in the city. The demand and supply
curves for rooms have been estimated as: QD = 12,200 - 4P QS = 200 + 2P, where P = monthly
rent, and Q = number of rooms available for rent. For purposes of this analysis, the rooms can
be treated as identical.
a. Calculate the equilibrium price and quantity that would prevail without the price ceiling.
Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing
both). (10 marks)
b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any
gains or losses in consumer and/or producer surplus. (8 marks)
c. Does the proposed rent ceiling result in net welfare gains? Would you advise the provincial
council to implement the policy? (7 marks)

2.
a. Describe why a government need an efficient tax system. (10 marks)
b. Using graphical illustrations describe how tax could make a market inefficient. (5 marks)
c. “It doesn’t matter to whom the tax is levied on, the burden is shared by both producers
and consumers”. Elaborate the statement using graphical illustrations. (5 marks)
d. Using graphical illustrations describe how (the factors affecting) the burden of taxes is
shared between producer and consumer of a good. (5 marks)

Note: When you answer questions 2b through 2d you should clearly indicate the
assumptions.
3.
a. What do you understand by externality? (5 marks)
b. Describe how a market become inefficient in the presence of externality. (5 marks)
c. List five examples of engineering products and corresponding externalities for each of
positive and negative externalities and describe how they can be considered as
externalities. (5 marks)
d. Describe how taxes and subsidies could internalize the externalities in decision making
process using graphical illustrations. (5 marks)
e. Describe the difference between the taxes and regularities in controlling negative
externalities. (5 marks)

4. Suppose a factory produces inter-lock paving blocks for sale, which requires a building and a
machine that produces blocks. A firm rents a building for Rs. 50,000 per month and rents a
machine for Rs. 30,000 a month. Those are his fixed costs. His variable cost per month is given
in the table below.

Quantity of Blocks Variable cost (Rs.)


0 0
1000 5000
2000 8000
3000 10000
4000 14000
5000 19000
6000 27000
7000 40000
8000 60000
9000 90000
10000 135000

a. Calculate factory’s average fixed cost per block, average variable cost, marginal cost and
average total cost, for each quantity of output (add four columns to the above table and
fill out the cells). (5 marks)
b. There is free entry into the industry, and anyone who enters will face the same costs as
anybody else in the market. Suppose that currently the price of a block is Rs. 30.
i. What will Factory’s profit be? (2 marks)
ii. Is this a long-run equilibrium? If not, what will the price of blocks will be in the long
run? (2 marks)
c. Assume that production of inter-lock blocks is a perfectly competitive industry. For each
of the following questions, explain your answers.
i. What is factory’s break-even price? What is his shut-down price? (4 marks)
ii. Suppose the price of a block is Rs. 5. What should the factory do in the short run?
(4 marks)
iii. Suppose the price of a block is Rs. 10. What is the profit-maximizing quantity of
blocks that should be produced? What will factory’s total profit be? Will the factory
produce or shut down in the short run? Will the factory stay in the industry or exit
in the long run? (4 marks)
iv. Suppose instead that the price of a block is Rs. 25. Now what is the profit-maximizing
quantity of blocks that the factory should produce? What will the total profit be
now? Will the factory produce or shut down in the short run? Will the factory stay
in the industry or exit in the long run? (4 marks)

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