THE HONG KONG POLYTECHNIC UNIVERSITY
HONG KONG COMMUNITY COLLEGE
Subject Title : Basic Economics
Subject Code
: CC1902
: Semester Two, 2010/11
Session
Numerical Answers
Section C – Short Questions.
Question C1
(a) The opportunity cost of corn in Beta is 3 wheat. The opportunity cost of corn in Alpha is 2
wheat.
(b) The opportunity cost of wheat in Beta is 0.33 corn. The opportunity cost of wheat in Alpha is
0.5 corn
Question C3
(a) To increase revenues, raise ticket prices for teenagers because their demand is price inelastic
at 0.2 and lower prices for adults because their demand is price elastic at 2.0.
Section D – Long Question.
Question D1
(a)
Output
1
2
3
4
5
6
7
Price
$5
$5
$5
$5
$5
$5
$5
Total
Costs
$10
$12
$15
$19
$24
$30
$45
Total
Revenue
5 (0.5)
10 (0.5)
15 (0.5)
20 (0.5)
25 (0.5)
30 (0.5)
35 (0.5)
Marginal
Revenue
0 (0.5)
5 (0.5)
5 (0.5)
5 (0.5)
5 (0.5)
5 (0.5)
5 (0.5)
Marginal Costs
2 (0.5)
3 (0.5)
4 (0.5)
5 (0.5)
6 (0.5)
5 (0.5)
(b) The profit maximizing level of output is 5, and profit level at $1.
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Question D2
(a) GDP = C + I + G + NX = $400 + $40 + $100 + $10 = $550.
(b) GNP = GDP + net factor income from abroad = $550 + $2 = $552.
(c) NNP = GNP – capital consumption allowance = $552 – $20 = $532.
(d) NI = NNP –statistical discrepancy = $532 – $5 = $527.
(e) Gross investment = net investment + capital consumption allowance = $20 + $20 = $40.
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