1. (a) Consider a perfectly competitive industry that produces a total output of 190 units in the long run. Suppose there are n identical firms in the market. Each firm then produces an amount 190/n. Further suppose that the total cost (TC) of a single firm in the market is TC = q2, where q is the amount the firm produces.
If the long run market price is P = 5, find the number of firms active (n) in the market.
(b) Consider a monopolist producer facing a demand curve and marginal revenue (MR) curve described by P = 100 - Q and MR = 100 - 2Q, respectively. The firm has a constant marginal cost (MC) of 10 and faces no fixed costs.
Find the equilibrium price and quantity if the monopolist wishes to maximise profit and draw a diagram to illustrate. Explain why the firm's monopoly power gives rise to a 'deadweight loss and indicate the area reflecting this deadweight loss in your diagram.
2. If GDP at current market prices was £994.3 billion in 2001, and £1,099.9 billion in 2003. The implicit GDP deflator was 100.0 in 2001 and 106.3 in 2003.
(a) Calculate real and nominal growth rate in GDP between 2001 and 2003.
(b) What is the average annual growth rate in each case?
3. Which of the following items are included in the calculation of GNP in the UK, and which are excluded?
(a) Salaries paid to schoolteachers
(b) Tips given to taxi drives
(c) Expenditure on social security benefits
(d) The income of a second-hand car salesman
(e) Work carried our at home by a housewife
(f) Work carried out in the home by a paid domestic helper
(g) The value of pleasure from leisure
(h) Free-range, organic eggs sold in the market
4. The table below shows the ranking of the first 53 countries according to the calculation of the Human Development Index (HDI) in 2004.
(a) Explain briefly what the HDI measures.
(b) Express briefly what you think about the way in which the HDI is constructed (briefly means no more than five lines of text).
(c) Mexico has a much higher income per capita than Cuba, even after considering differences in the prices of the goods and services in Mexico and Cuba. However, Cuba ranks better according to HDI than Mexico. Explain why this might be.