Microeconomics II
ECS2601
Department of Economics
Assignment 02 for 2021
AS PER UPDATED TUTORIAL LETTER TUT 001/3/2021
Learning Units 8 to 12
Unique Number: 700643
Due Date: 7 June 2021
This assignment contributes 50% towards your semester mark.
Please ensure that this assignment reaches the university before the due date.
Answer all questions on a mark-reading sheet.
Questions 1 to 20 of the assignment are MULTIPLE-CHOICE questions.
In each question, select the most correct option.
1. A firm’s primary objective is
[1] to maximise profits and minimise costs.
[2] to minimise total costs and improve output.
, [3] to maximise total revenue and minimise loss.
[4] to minimise marginal cost and maximise marginal revenue.
Answer:
The firm has a dual objective since profit-maximization would constitute cost-minimization.
2. Khalid used to be a DJ earning R500 000 a year, but he now works as a plumber. Each
year, his direct costs are R185 000. This includes the annual electricity, water and levy
bill of R82 000, and annual rent of R75 000. He has R120 000 of financial capital tied up
in the business throughout the whole year, and the market interest rate is 8.5%. His
annual revenue as a plumber is R900 000. Which of the following statements is correct?
[1] Khalid is breaking even.
[2] Khalid is making economic profit of R95 000.
[3] Khalid is making economic profit of R204 800.
[4] Khalid is making economic loss of R62 000.
Answer:
Economic profit is:
𝐸𝑃 = 900,000 − 185,000 − (500,000 + 120,000 × 0.085) = 204,800.
Economic profit equals total revenue minus total costs. It is important to note that total costs
include implicit and explicit costs. In this case, total revenue is R900 000. Implicit costs are R510
200. Implicit costs are all the costs forgone such as the salary he used to earn as a DJ and the
8.5% interest income forgone on the financial capital. The explicit costs are R185 000. Hence, the
profit is R204 800.
Use the diagram below for a firm operating in a perfectly competitive market and answer the
question that follows.
ECS2601
Department of Economics
Assignment 02 for 2021
AS PER UPDATED TUTORIAL LETTER TUT 001/3/2021
Learning Units 8 to 12
Unique Number: 700643
Due Date: 7 June 2021
This assignment contributes 50% towards your semester mark.
Please ensure that this assignment reaches the university before the due date.
Answer all questions on a mark-reading sheet.
Questions 1 to 20 of the assignment are MULTIPLE-CHOICE questions.
In each question, select the most correct option.
1. A firm’s primary objective is
[1] to maximise profits and minimise costs.
[2] to minimise total costs and improve output.
, [3] to maximise total revenue and minimise loss.
[4] to minimise marginal cost and maximise marginal revenue.
Answer:
The firm has a dual objective since profit-maximization would constitute cost-minimization.
2. Khalid used to be a DJ earning R500 000 a year, but he now works as a plumber. Each
year, his direct costs are R185 000. This includes the annual electricity, water and levy
bill of R82 000, and annual rent of R75 000. He has R120 000 of financial capital tied up
in the business throughout the whole year, and the market interest rate is 8.5%. His
annual revenue as a plumber is R900 000. Which of the following statements is correct?
[1] Khalid is breaking even.
[2] Khalid is making economic profit of R95 000.
[3] Khalid is making economic profit of R204 800.
[4] Khalid is making economic loss of R62 000.
Answer:
Economic profit is:
𝐸𝑃 = 900,000 − 185,000 − (500,000 + 120,000 × 0.085) = 204,800.
Economic profit equals total revenue minus total costs. It is important to note that total costs
include implicit and explicit costs. In this case, total revenue is R900 000. Implicit costs are R510
200. Implicit costs are all the costs forgone such as the salary he used to earn as a DJ and the
8.5% interest income forgone on the financial capital. The explicit costs are R185 000. Hence, the
profit is R204 800.
Use the diagram below for a firm operating in a perfectly competitive market and answer the
question that follows.
