Question 1 [40] 1 1 How Do The Three (3) Basic Economic


Question 1 [40]

1.1. How do the three (3) basic economic

questions for a country relate to the firm and what is the role of the manager? (9)

1.2. The following relations describe the monthly demand and supply, and cost conditions for a computer support service company catering to small businesses in Gauteng:

Qd = 2 400 – 8P

Qs = -1 000 +8P

Where Q = number of businesses that need services

P = the monthly fee in rands

TC = 30 000 + 70Q

Where TC = firm’s total cost per month in rands in the short run


1.2.1. At what average monthly fee would demand equal zero? (2)

1.2.2. At what average monthly fee would supply equal zero? (2)

1.2.3. What are the equilibrium price and output levels? (4)

1.2.4. Determine the point elasticity of demand at equilibrium. What will happen with the firm’s revenue if management decides to increase its price? Why? (6)

1.2.5. Graphically illustrate the demand and supply curves as well as short-run equilibrium. (5)

1.2.6. What is the firm’s fixed cost? (1)

1.2.7. Determine the firm’s profit or loss. (5)

1.2.8. Does the firm earn normal or economic profit and why? (6)