BEC/HRM/BSP 110
PRINCE DANIELS, ACADEMY
28TH MARCH, 2024
PRINCE DANIELS – 2024
QUESTION ONE
The Kitwe Metro Cinemas are trying to determine the
optimal price for their film tickets. Demand data provided by
their consultants, Phiri & Co. is shown below.
Price
Quantity demanded
K 5,000
800
K10,000
600
K15,000
400
K20,000
200
(a) If the cinema hall has a seating capacity of 800 seats,
how much money should Kitwe Metro Cinemas expect to
make at a price of K10,000 per ticket?
(b) How much money will they make if they want to ensure
that all seats are taken so that there is neither a surplus nor
a shortage?
(c) The Cinema is planning to buy a newly released
blockbuster that will cause the quantity of tickets demanded
at price to double. What will the new equilibrium price be?
(d) At what price should the new film be set for the Cinema
to maximize revenue?
PRINCE DANIELS – 2024
QUESTION TWO
Consider the following information about the business
activities of two perfectly competitive firms in different
industries, Firm A and Firm B. Each firm has an upward
slopping marginal cost curve.
Firm A: Output = 5,000 units
Total variable cost = K2,500,000
Price = K1,000
Total fixed cost = K2,000,000
Marginal cost = K1,200
Firm B: Output = 5,000 units
Average total cost (at their minimum level) = K1,000
Price = K1,200
Give your answers for each firm.
(a) Are these firms making profits?
(b) If so how much?
(c) Are these firms making maximum profits?
(d) Should these firms produce more, less, or the same
output? Explain.
PRINCE DANIELS – 2024
QUESTION THREE
In a competitive market with no government intervention the
equilibrium price of bananas is K2,000 per kilogram and the
equilibrium quantity is 10,000 kilograms. Explain, and
illustrate by drawing the appropriate diagrams, what the
effect of each of the following forms of government
intervention will be on the market for bananas:
a) The government imposes an excise tax of K500 per
kilogram.
Type equation here.
b) The government pays a subsidy of K1,000 per kilogram
produced.
c) The government sets a price floor of K2,500 per kilogram.
d) The government sets a price ceiling of K1,500 per
kilogram.
e) The government sets a production quota, allowing only
6,000 kilograms to be produced.
QUESTION FOUR
Suppose a consumer has a budget for fast-food items of
K20 per week and spends this money on two goods,
hamburgers and pizzas. Suppose hamburgers cost K5 each
PRINCE DANIELS – 2024
and pizzas cost K10. Put the quantity of hamburgers
purchased per week on the horizontal axis and the quantity
of pizzas purchased per week on the vertical axis.
a) Draw the budget line. What is its slope?
b) Suppose the consumer in part (a) is indifferent among
the combinations of hamburgers and pizzas shown. In the
grid you used to draw the budget lines, draw an indifference
curve passing through the combinations shown, and label
the corresponding points A, B, and C. Label this curve IC.
Combination
Hamburgers/week
Pizzas/week
A
5
0
B
3
0.5
C
0
3
c) Is the budget line tangent to indifference curve IC at any
point? Explain the meaning of this tangency.
PRINCE DANIELS – 2024