ECO 312 TEST ONE 2018
.docx
School
University of Botswana-Gaborone**We aren't endorsed by this school
Course
ECO 312
Subject
Economics
Date
Dec 22, 2024
Pages
2
Uploaded by MasterDolphinMaster1047
UNIVERSITY OF BOTSWANADEPARTMENT OF ECONOMICSECO 312 TEST ONEInstructions: Choose only ONEquestion.Time: 2 hoursQUESTION 1a)Show that when the firm acts as a monopolist in the product market its demand curve for alabour is no longer equal to the value of the marginal product, but that it is now equal to themarginal revenue product. State your assumptions clearly.(10 marks)b)If demand for labour is given by L= -50 W+450 and the supply is given by L=100Wi) What will be the equilibrium levels for W and L?(4 marks)ii) The Government now declare a min wage of P4 per hour. How much will bethe demand for labour at this wage?(6 marks)iii) How much will be the unemployment? (4 marks)c)With the aid of appropriate diagrams and a suitable example distinguish between a risklover and someone who is risk averse.(10marks)d)Two investment proposals A and B have the following net cash flows (revenue – costs):End of YearNet Cash FlowProposal AProposal B0P -10,000P – 10,00013,0006,00023,0006,00037,0003,00046,0003,000Which of the two proposals should you undertake when the interest rate is 18%?(10 marks)
QUESTION 2a)Show that for a monopsonistic market MRCL>ARCLWhere, MRCLand ARCLrepresentrespectively Marginal Resource Cost and Average Resource Cost of Labour. State yourassumptions clearly.(10 marks)b)Bokamoso private hospital has a demand for specialist labour in Botswana that can be expressed as W=80−0.1L, where Wis the price of labour and Lthe quantity of labour demanded. The supply for labour of such specialist labour is completely inelastic in the short run at a level of 40. Using a diagrammatic approach:i)Determine the equilibrium wage, and the “rent” element in that wage. Explain the economic rationale behind your conclusion(6 marks)ii)If Bokamoso’s demand function for labour falls to W=60−0.1L, calculate the new wage level and the associated economic rent.(6 Marks)iii)The supply curve now become slightly elastic and is now expressed as:W=20+0.05L, calculate the economic rent element in wages assuming that the demand function has reverted to its original position. Explain fully the economic reasoning behind your answers.(6 marks)c)Explain why, if the decision maker is risk loving, the risk premium is negative and no insurance market can exist.(4 marks)d) A granite company is planning to buy a fully automated granite cutting machine. If it is purchased under a down-payment plan, the cost of the machine is P 1,600,000. If it purchased under an installment plan, the company has to pay P 400,000 at the time of purchase and the remaining amount in 10 annual equal installments of P 200,000 each. Compare the two alternatives available to the company. Suggest the best alternative for the company using the present worth method at i =18%.(8 marks)