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Task 1 - Case Study and Questions (AC: 1.1; 1.2; 1.3; 2.1; 2.2; 4.1; 4.2)

Imagine you are the owner of a business manufacturing and selling a particular type of table in the home furniture industry.

The average variable costs of producing each table are £180 while the fixed costs are £12,000

Product: Table

Price (£)                                 Quantity Demanded

Q1) Calculate total revenues at different prices.

Q2) Which price would yield the greatest revenue?

Q3) Draw the demand curve for the tables

Q4) Draw a supply curve for the tables on the same diagram as the demand curve you have drawn for Q3.

Q5) On the supply/demand diagram find the equilibrium price and equilibrium quantities sold/bought.

Q6) Would you make a loss or profit by selling the equilibrium quantity and charging the equilibrium price?

Q7) If quantity demanded of tables increases by 180 at all prices, draw the new demand curve and find the new equilibrium price and quantities.

Also, identify and explain specific factors which might have caused an increase in the demand for tables.

Q8) Calculate your new sales and revenues at all prices and all corresponding higher new quantities demanded.

Q9) How much would your loss or profit be at the new equilibrium price?

Q10) Now, assume that the new equilibrium price you have worked out in Q7 above is the price you are going to charge in the following 6 months, that is,  January to June 2008. You have estimated your sales in these 6 months to be as follows

Using the data above and the data on costs of production given below, produce:

i)   a monthly sales revenue budget for the period stated above (i.e. Jan. to June 2008)

ii)  a monthly production budget for the period stated above (i.e. Jan. to June 2008) assuming average variable costs are £180 per table and fixed costs are £1000 per month

iii) a profit budget for the 6 month period stated above

Q11) Briefly discuss the factors which could lead to an increase in the supply of tables and evaluate the effect of an increase in supply on the equilibrium price of tables.

Task 2 – Essay Questions (AC:3.1, 3.2, 5.1, 5.2)

Q12) Explain how contractionary monetary through higher interest rates might affect your business.

Q13)  Evaluate the likely impact on your business of the following government budget measures:

i)                 increases in  income tax  and VAT :

ii)                cuts in government expenditure (e.g. funding) on schools and colleges

Q14) Suppose you work as an Economist advising the Chancellor of the Exchequer on fiscal policy. Suggest some appropriate measures the Chancellor of the Exchequer should include in the next budget to help businesses.