UNIVERSITY OF GHANA BUSINESS SCHOOL
(REGULAR AND WEEKEND MBA/MPA PROGRAM)
First Semester 2023/2024
UGBS 603: Economics
Problem Set 2
Instructors: K. Addai-Ankrah, S. Addo, E. Asiedu, P. Asuming, A. and A.
Gyeke-Dako
Submission instructions:
This problem set is due at beginning of class on 16 th January 2024 (for Regular
group), 19th January 2024 (for group 3) and 20th January 2024 (for all other
Weekend groups). All answers should be handwritten.
Problem one
You are a manager for Herman Miller, a major manufacturer of office furniture. You
recently hired an economist to work with engineering and operations experts to
estimate the production function for a particular line of office chairs. The report from
these experts indicates that the relevant production function is:
𝑄 ≡ 𝐹(𝐾, 𝐿) = 2𝐿 𝐾
Where K represents capital equipment and L is labour.
a) In ordinary language, explain what it means for this production function to
exhibit diminishing returns to labour. Does this production function have this
property?
b) In ordinary language, explain what it means for this production function to
exhibit constant returns to scale. Does this production function have this
property?
Suppose the firm has already spent $8000 on 9 units of capital that it cannot change for
the foreseeable future. Suppose also that each unit of labour costs $120 per day and
output is sold at $400 each.
c) What is the profit-maximizing level of output and labour usage?
d) What is the maximum profit?
1
Problem two
Consider the total cost and total revenue given in the following table:
Total Total
Quantity cost
Revenue
0
8
0
1
9
8
2
10
16
3
11
24
4
13
32
5
19
40
6
27
48
7
37
56
a) Calculate the profit for each quantity. How much should the firm produce to
maximize profit?
b) Calculate the marginal revenue and marginal cost for each quantity. Graph them.
c) Can you tell whether this firm is in a competitive industry? If so, can you tell whether
the industry is in a long-run equilibrium?
Problem three
You are the general manager of a firm that manufactures personal computers. Due to
a soft economy, demand for PCs has dropped 50 percent from the previous year. The
sales manager of your company has identified only one potential client, who has
received several quotes for 10,000 new PCs. According to the sales manager, the client
is willing to pay $800 each for 10,000 new PCs. Your production line is currently idle,
so you can easily produce the 10,000 units. The accounting department has provided
you with the following information about the unit (or average) cost of producing three
potential quantities of PCs:
Materials (PC component)
Depreciation
Labor
Total unit cost
10,000 PCs
$600
300
150
$1,050
15,000 PCs
$600
225
150
$975
20,000 PCs
$600
150
150
$900
Based on this information, should you accept the offer to produce 10,000 PCs at $800
each? Explain.
2
Problem four
For this question, refer to the Bank of Ghana’s Monetary Policy Committee Press
Release of May 21, 2018.
a) Explain the difference between monetary loosening and monetary tightening.
According to the statement, the MPC reduced the monetary policy rate by 100 basis
points. Does this constitute a monetary loosening or monetary tightening? Explain.
b) When deciding whether to tighten or loosen monetary policy, central banks weigh
the relative risks to price stability and growth. Mention two indicators that the MPC use
to gauge the risk to inflation and two indicators the MPC use to gauge the risk to
growth.
c) Based on the information in the Press Release, in the thinking of the MPC did the
risk to growth outweighed the risk to inflation or vice versa? Refer to specific points
from the press release to back up your argument.
d) Using the money market diagram studied in class, explain the effect of this policy
measure on the real interest rate.
e) In ordinary language, explain how the reduction in the Monetary Policy Rate will help
the relative risk identified in part (c) above.
Problem five
For this question, refer to the Table from the CPI Newsletter.
Month
October 2022
November 2022
December 2022
January 2023
February 2023
March 2023
April 2023
May 2023
June 2023
July 2023
August 2023
September 2023
November 2023
CPI (2021=100)
144.4
156.8
165.6
168.7
166.6
170.5
178.7
184.4
191.0
190.6
194.2
195.2
198.2
3
a)
b)
c)
d)
e)
Explain Inflation. How is deflation measured? Provide a formula.
What is the difference between disinflation and deflation?
What is the difference between core inflation and headline inflation?
Calculate the year-on-year inflation for September 2023.
What is the percentage change in the cost of living between January 2021 and
November 2023?
Problem six
The table below contains information extracted from the 6 th round of the Ghana
Living Standards Survey (GLSS) conducted from September 2012 to September 2013.
Total number of people (15 years and above)
Q1: Did you do any work for pay, profit, family gain or did
you produce anything for barter or home use during the last 7
days even if it was for only one hour?
Yes
No
Q2: In the last 7 days were you an apprentice?1
Yes
No
Q3: Were you temporarily absent from work in the last 7 days
or did you have a job, business, or other economic or farming
activity that he/she will definitely return to?2
Yes
No
Q4: Were you available for work during the last 7 days or
within the next 4 weeks if there had been an opportunity to
work?3
Yes, last 7 days
Yes, but only within the next 4 weeks
No
Q5: Did you make any effort during the last 7 days or past 4
weeks to find work or start own business?4
Yes, last 7 days
1
This was asked only for those who answered “No” to Q1
This was asked only for those who answered “No” to Q1 & Q2
3 This was asked only for those who answered “No” to Q1, Q2 & Q3
4 This was asked only for those who answered “Yes” to Q4
2
4
42,697
29,861
12,836
496
12,340
2,394
9,954
1,301
160
8,318
419
Yes, prior to last 7 days but in the last 4 weeks
No
198
845
Note: The questions have been slightly altered from the original question form in the GLSS without
any material change in the import of the original question.
a) Calculate the number of people who were employed (including those in
apprenticeship)
b) Calculate the number of people who were unemployed
c) Calculate the number of people in the labour force
d) Calculate the labour force participation rate
e) Calculate the unemployment rate.
5