Date of Examination: 19/10/2020

AHSANULLAH UNIVERSITY OF SCIENCE AND TECHNOLOGY

School of Business
BBA Program
Semester Final Examination: Fall 2019
1st Year 2nd Semester
Course Number: BBA 123
Course Name: Microeconomics
Time: 2 (Two) hours Full Marks: 60

Instructions: i) Answer script should be hand written and should be written in A4 white
paper.

ii) Write down Student ID, Course number, and put your signature on top of
every single page of the answer script.

iii) Write down page number at the bottom of every page of the answer script.

iv) Upload the scan copy of your answer script in PDF format at the respective
site of the course at Google classroom using institutional email within the
allocated time. Uploading clear and readable scan copy is your responsibility
and must be covered the full page of your answer script.

v) Before uploading rename the PDF file as

CourseNo_StudentID.pdf [single manuscript]
For example
BBA123_180102001.pdf

vi) You must avoid plagiarism, maintain academic integrity and ethics. You
are not allowed to take any help from another individual and if taken so can
result in stern disciplinary actions from the university authority.

vii) There are 6 (Five) Questions, Answer any 4 (Four)

viii) Marks allotted are indicated in the right margin

Page 1 of 5
1. a. Describe the differences between command economy and mixed economy? Which one is 6
better? Justify your answer.
b. A survey shows that chocolate is Americans’ favorite ice cream flavor. Following are the 4
other related information about the survey:
i. A severe drought in the Midwest causes dairy farmers to reduce the number of milk-
producing cattle in their herds by a third. These dairy farmers supply cream that is
used to manufacture chocolate ice cream.
ii. A new report by the American Medical Association reveals that chocolate does, in
fact, have significant health benefits.
iii. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice
cream.
iv. New technology for mixing and freezing ice cream lowers manufacturers’ costs of
producing chocolate ice cream.
Required: For each of the scenarios above, explain the impacts on the demand and supply
of the chocolate ice cream.
c. The demand schedule for pizza is given below: 5
Price Demand
0.50 30
1.00 20
1.50 10
2.00 5
2.50 2
Required:
i. Plot the demand curve with the given demands schedule.
ii. Explain the relationship between price and demand of pizza.
iii. Assume that the price of cheese decreases. Explain, how would this affect the
demand curve of pizza?

2. a. After several years of decline, the market for handmade acoustic guitars is making a 6
comeback. These guitars are usually made in small workshops employing relatively few
highly skilled luthiers.
i. Music featuring handmade acoustic guitars makes a comeback as audiences’ tire
of heavy metal and grunge music.
ii. The country goes into a deep recession and the income of the average American
falls sharply.
Required: Predict the impact on the equilibrium price and quantity of handmade acoustic
guitars as a result of each of the given events. In your answers, explain which curve(s)
shift(s) and in which direction (do not need to draw graph).
b. The demand and supply schedules for potato chips are given below: 9
Price Quantity demanded Quantity supplied
50 160 130
60 150 140
70 140 150
80 130 160
90 120 170
100 110 180

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 Required:
i. Draw graph of the potato chip market and show the equilibrium price and quantity.
ii. Explain the nature of the two graphs.
iii. A new dip increases the quantity of potato chips that people want to buy by 30 million
bags per week at each price. Does the demand for chips change? Does the supply of
chips change? Describe the change with a graph.
3. a. Explain with example what does the positive and negative sign of the income elasticity 6
tell us about the demand of a good.
b. In a survey of caterers and event planners, nearly half of them said that they were seeing 6
decline in wedding spending in response to the economic slowdown; 12% even reported
wedding cancellations because of financial concerns.
Required:
i. Based upon this news clip, are wedding events a normal good or inferior good?
Explain your answer.
ii. Are wedding events more a necessity or a luxury? Would the income elasticity of
demand be greater than 1, less than 1, or equal to 1? Explain your answer.
c. Answer the following questions: 3
i. A 12% rise in the price of cookies increases the quantity of muffins demanded by 24%
and decreases the quantity of cookies demanded by 18%. Calculate the cross elasticity
of demand between cookies and muffins.
ii. When Alex’s income was $3,000, he bought 4 bagels and 12 donuts a month. Now his
income is $5,000 and he buys 8 bagels and 6 donuts a month. Calculate Alex’s income
elasticity of demand for Bagels and Donut.
4. a. The following table shows Liz’s utility from her consumption of popcorn and candy: 6
Bags of popcorn Total utility Marginal utility from last bag
0 0 ---
1 20 20
2 36 16
3 50 ---
4 --- 12
5 72 ---
6 80 ---

Candy bars Total utility Marginal utility from last bar

0 0 --
1 14 14
2 -- 12
3 --- 10
4 44 --
5 51 --
6 57 --

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 Required:
i. Find out the missing amount in both tables and complete the tables.
ii. Suppose that the price of a bag of popcorn is $1 and that the price of a candy bar is
$0.50. Use the information in given tables to calculate marginal utility per dollar
from popcorn and marginal utility per dollar from candy.

b. Given the following marginal utility schedule for good X and good Y for Alex, and given 6
that the price of X and the price of Y are both $1, and that Alex spends all income of $7
on X and Y.

Quantity 1 2 3 4 5 6 7
MUx 15 11 9 6 4 3 1
MUy 12 9 6 5 3 2 1

Required:
i. Indicate how much of X and Y Alex should purchase to maximize utility.
ii. Show that the condition for constrained utility maximization is satisfied when
Alex is at his or her optimum.
iii. Determine how much total utility Alex receives when he or she maximizes utility?
How much utility would Alex get if he spent all income on X or Y?
c. Loren is in equilibrium, spending her income of $200 buying 2 video games at a price of 3
$40 each and 8 DVDs at a price of $15 each. Then, inflation causes the price of a DVD
and a video game to double (to $80 and $30, respectively) while Loren’s income also
doubles (to $400).
Required: What happens to Loren’s purchases of video games and DVDs: Do both
increase, decrease, not change, or change in some direction that cannot be determined?
5. a. Describe in how oligopoly and monopolistic market differs from perfect competitive 7
market.
b. Use the following information to calculate the Herfindal-Hirschman Index for the U.S. 5
auto market. Discuss your findings.

Companies in the US auto Market Percentage of shares

Honda 10%
Nissan 7%
Hyundai 5%
Kia 4%
Subaru 3%
Volkswagen 3%

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 c. Consider the Shady Valley soft drink industry. This table presents the annual sales of the 3
top eight soft drinks in the greater metropolitan Shady Valley area. OmniColathe favorite
of Shady Valley soft-drink connoisseurs, ringing up total sales of $460 million per year.
Juice-Up is also quite popular, with $350 million of sales. Most people are likely to
recognize their favorite beverage on the list of the top eight. If not, it is included in the
"Other" category. The total sales of the soft drink industry are $2,000 million per year.
Rank Firms Sales
1 OmniCola 460
2 Juice-Up 350
3 Super Soda 225
4 King Caffeine 190
5 Mega Cola 123
6 Hometown Brew 87
7 Frosty Grape 72
Others 493
Required: Use the following information to calculate the Four Firm Concentration Ratios
of the Shady Valley soft drink industry.

6. a. Explain the relationship between marginal product and average product. 4

b. Discuss the relationship between the value of marginal product of labor and the average 4
product of labor?
c. Wanda owns a fish store. She employs students to sort and pack the fish. Students can 7
pack the following amounts of fish. The fish market is competitive and the price of fish is
50¢ a pound and market wage rate is $7.50 an hour.
Number of Students Total Quantity of Fish (pounds)
1 20
2 50
3 90
4 120
5 145
6 165
7 180
8 190
Required:
i. Calculate the marginal product of the students and the value of marginal product of
labor.
ii. At Wanda’s fish store, packers’ wages increase to $10 an hour, but the price of fish
remains at 50¢ a pound. What happens to the value of marginal product of labor?

End
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