ECS2606 EXAM PACK
2023
QUESTIONS AND
ANSWERS
For assistance contact
Email:
, ECS2606/201/1/2021
1. SOLUTIONS TO ASSIGNMENT 01
Question 1
Explain and diagrammatically illustrate the impact that the Covid-19 -pandemic induced restrictions on
economic activities imposed in many countries across the world in 2020 had on the materials balance
principle [15]
Introduction
Begin with an appropriate introduction.
Discussion
This Question was intended to test your skill of applying economic theory to the real world. The theory
part of the Question is found in Chapter 2 of the prescribed textbook and the relevant diagram is Figure
2.1. Below is a summary of the points you could have discussed, they are summarized in bullet points,
but please note that your answers must always be in discussion format.
Producer production and consumer consumption activities result to the production of residuals to
nature.
The potential spread of COVID-19 propelled the government to implement a National Lockdown
which restricts economic activities.
With the decrease in economic activities (producer activities) due to the National activities, the
flow of residuals into nature was slowed.
Some workers have been laid off from work which has resulted to a loss of income. The loss of
income lead to low consumption levels which reduces the flow of residuals to nature.
3
,Conclusion
Write an appropriate conclusion
Question 2
Read the statement below and answer the questions that follow:
Suppose a project with a 6% discount rate yields R5000 for the next three years. Annual operating costs
amount to R1000 for each year, and the one-time initial investment cost is R8000.
This is an application question based on Chapter 6 of the prescribed textbook. There was no need for an
introduction or conclusion since the question only required you to use the formula to perform some
calculations. Many of you got the question right as you were able to use internet sources-in addition to
the textbook and the formula that was provided on MyUnisa- to find the relevant formula.
a) Calculate the Net Present Value (NPV) of this project. [10]
Formula:
Where is the initial investment cost, r is the discount rate, is the benefit stream that begins
at Year 1 , and is the project’s lifetime.
Calculations:
Net annual yields = annual yields – annual operating costs
R5000-R1000 = R4000
NPV = -R8000 + Σ [4000/ (1+.06) 1 + [4000/ (1+.06)2 + [4000/ (1+.06)3
=-R8000 + Σ [4000/1.06) + [4000/ (1.1236) + [4000/ (1.1910)
=-R8000 + Σ3774 + 3560 + 3358
=-R8000 + R10, 692 = R2692
b) Calculate the benefit-cost ratio for the project. [3]
A benefit-cost ratio is used to determine the feasibility of a project during any given year or over a
time span. It can be calculated by taking either (i) the PV of future benefits over the PV of costs
including investment and annual operating costs, or (ii) the PV of future net benefits over the one-
time investment costs (Nas, 1996: 122-123).
Benefit/cost ratio
B/C = PV of NB / I O
B / C = R10 692 / R8000
= 1.3365
4
, ECS2606/201/1/2021
a) Is the project acceptable? Motivate your answer. [2]
Yes, project is acceptable at a 6% discount rate, because the benefits exceeds the costs (R10
692-R8000). See pages 114-115 (from last paragraph on page 114). Or Yes, the project is
acceptable at a 6% discount rate, because the benefit-cost ratio exceeds 1.
Question 3
Use a graph to explain how the equimarginal principle can be applied to minimise production costs.
[10]
Introduction
The equimarginal principle states that if you have multiple sources to produce a given product or achieve
a given goal, and you want to minimise the total cost of producing a given quantity of that output,
distribute production in such a way as to equalise the marginal costs between the production sources.
Below is a summary of the points you could have discussed, they are summarized in bullet points, but
please note that your answers must always be in discussion format. The appropriate diagram is Figure
3.8.
Discussion
Explain the aim is to minimise total cost.
Explain graph and different shape of MC-curves.
Can split it 50/50 but that does not minimise cost (refer to graph).
Move units from high MC to lower MC until equal.
Must keep MC equal – that will minimise total cost.
5
2023
QUESTIONS AND
ANSWERS
For assistance contact
Email:
, ECS2606/201/1/2021
1. SOLUTIONS TO ASSIGNMENT 01
Question 1
Explain and diagrammatically illustrate the impact that the Covid-19 -pandemic induced restrictions on
economic activities imposed in many countries across the world in 2020 had on the materials balance
principle [15]
Introduction
Begin with an appropriate introduction.
Discussion
This Question was intended to test your skill of applying economic theory to the real world. The theory
part of the Question is found in Chapter 2 of the prescribed textbook and the relevant diagram is Figure
2.1. Below is a summary of the points you could have discussed, they are summarized in bullet points,
but please note that your answers must always be in discussion format.
Producer production and consumer consumption activities result to the production of residuals to
nature.
The potential spread of COVID-19 propelled the government to implement a National Lockdown
which restricts economic activities.
With the decrease in economic activities (producer activities) due to the National activities, the
flow of residuals into nature was slowed.
Some workers have been laid off from work which has resulted to a loss of income. The loss of
income lead to low consumption levels which reduces the flow of residuals to nature.
3
,Conclusion
Write an appropriate conclusion
Question 2
Read the statement below and answer the questions that follow:
Suppose a project with a 6% discount rate yields R5000 for the next three years. Annual operating costs
amount to R1000 for each year, and the one-time initial investment cost is R8000.
This is an application question based on Chapter 6 of the prescribed textbook. There was no need for an
introduction or conclusion since the question only required you to use the formula to perform some
calculations. Many of you got the question right as you were able to use internet sources-in addition to
the textbook and the formula that was provided on MyUnisa- to find the relevant formula.
a) Calculate the Net Present Value (NPV) of this project. [10]
Formula:
Where is the initial investment cost, r is the discount rate, is the benefit stream that begins
at Year 1 , and is the project’s lifetime.
Calculations:
Net annual yields = annual yields – annual operating costs
R5000-R1000 = R4000
NPV = -R8000 + Σ [4000/ (1+.06) 1 + [4000/ (1+.06)2 + [4000/ (1+.06)3
=-R8000 + Σ [4000/1.06) + [4000/ (1.1236) + [4000/ (1.1910)
=-R8000 + Σ3774 + 3560 + 3358
=-R8000 + R10, 692 = R2692
b) Calculate the benefit-cost ratio for the project. [3]
A benefit-cost ratio is used to determine the feasibility of a project during any given year or over a
time span. It can be calculated by taking either (i) the PV of future benefits over the PV of costs
including investment and annual operating costs, or (ii) the PV of future net benefits over the one-
time investment costs (Nas, 1996: 122-123).
Benefit/cost ratio
B/C = PV of NB / I O
B / C = R10 692 / R8000
= 1.3365
4
, ECS2606/201/1/2021
a) Is the project acceptable? Motivate your answer. [2]
Yes, project is acceptable at a 6% discount rate, because the benefits exceeds the costs (R10
692-R8000). See pages 114-115 (from last paragraph on page 114). Or Yes, the project is
acceptable at a 6% discount rate, because the benefit-cost ratio exceeds 1.
Question 3
Use a graph to explain how the equimarginal principle can be applied to minimise production costs.
[10]
Introduction
The equimarginal principle states that if you have multiple sources to produce a given product or achieve
a given goal, and you want to minimise the total cost of producing a given quantity of that output,
distribute production in such a way as to equalise the marginal costs between the production sources.
Below is a summary of the points you could have discussed, they are summarized in bullet points, but
please note that your answers must always be in discussion format. The appropriate diagram is Figure
3.8.
Discussion
Explain the aim is to minimise total cost.
Explain graph and different shape of MC-curves.
Can split it 50/50 but that does not minimise cost (refer to graph).
Move units from high MC to lower MC until equal.
Must keep MC equal – that will minimise total cost.
5
