Download Level 3 Economics (90629) 2011 Assessment Schedule

NCEA Level 3 Economics (90629) 2011 — page 1 of 7
Assessment Schedule – 2011
Economics: Understand marginal analysis and the behaviour of firms (90629)
Evidence Statement
Code
Q
A1
ONE (a)
(b)
Evidence
Duopoly
Strong barriers to entry,
differentiated product,
strong control over price,
imperfect knowledge.
Achievement
Merit
Excellence
Any ONE of:
 Duopoly
 Two features of duopoly
 Two methods of differentiated product
 Monopolistic competition.
(Allow follow-through from
(a) if monopolistic
competition).
(c)
Eg Location, service,
loyalty scheme,
advertising.
(d)
Monopolistic competition
A2
TWO
OR
(a)
If a consumer takes an
additional bungy jump
their extra satisfaction
from that jump will
diminish. In order for a
consumer to purchase an
extra jump the price must
fall to ensure that the
price is equal to or less
than the marginal utility of
that extra jump.
M2
(b)
(c)
The MU / P of a bungy
jump is $150 / $100 = 1.5.
Because Toni chose the
bungy jump over a
skydive, the MU / P of a
skydive must have been
less than 1.5. Because
the price of a skydive is
$200, the MU of a skydive
must be less than 300 to
get MU / P < 1.5 as an
answer.
TU = 150, 290
MU = 80, 0
(d)
Quantity demanded =
4, 2, 1, 0
(e)
See Appendix One.
(i) and (ii)
(f)
$800
See Appendix Two.
Any THREE of:
 Recognition that an
extra bungy jump
will generate a
smaller amount of
extra satisfaction,
and price needing
to fall as MU
decreases
 Recognition that
MU/P of a sky dive
must be less than
that of a bungy
jump
 THREE
calculations correct
in (c)
 THREE
calculations correct
in (e) (i) or (ii)
 Accounting cost is
the cost of
resources (or
explicit cost), and
Economic cost
includes the
opportunity cost of
using resources.
(Accept “implicit
costs” with no
mention of
opportunity cost).
THREE of the answers below. ONE of the
answers MUST be either (d) or (f):
 An extra bungy jump consumed may
generate a smaller amount of extra
satisfaction, meaning price must fall to
be equal to or less than the decreased
MU
 Explanation including calculation of
MU / P of a bungy jump = 1.5, and
MU / P of skydive needing to be less
than 1.5
 THREE of four figures correct in (d)
 Graph drawn correctly in (f) with NO
errors to: the scale, axis, and labels
 Accounting cost AND Economic cost
explained, with a calculation of the
economic cost (either as $360 000, or
$350 000 and opportunity cost of 5% of
$200 000).
NCEA Level 3 Economics (90629) 2011 — page 2 of 7
Code
Q
Evidence
TWO
(g)
Accounting cost is the
cost of resources used in
production. The new
bungy jump has an
accounting cost of
$350,000. Economic cost
is the accounting cost
plus opportunity costs.
The economic cost of the
new bungy jump is
$350,000 plus $10,000,
which was the interest
forgone on the savings.
Total economic cost is
$360,000.
Achievement
Merit
Excellence
NCEA Level 3 Economics (90629) 2011 — page 3 of 7
Code
Q
Evidence
A3
THREE
OR
(a)
Dairy farmers are price
takers, they must accept
the market price for every
quantity they produce.
Therefore the marginal
revenue and average
revenue will not change
with increased output.
M3
OR
E3
(b)
See Appendix Three.
(c)
Qe is the output where the
dairy farmer’s marginal
revenue is equal to
marginal cost. At an
output below Qe the
farmer is missing out on
marginal profits up to Qe,
and at any output higher
than Qe, the farm is
making marginal losses
on every output after Qe.
(d)
See Appendix Three for
diagrams
AND
When dairy farmers are
making supernormal
profits, more farmers will
enter the market due to
no barriers to entry. This
will increase the market
supply to S1. As a result,
the market price will fall.
Because dairy farmers
are price takers, they
must accept the new
market price so their
AR / MR / P / D will
decrease to AR1 / MR1 /
P1 / D1. To continue to
maximise profit, this
individual dairy farmer will
reduce output to where
MR1 = MC, to avoid
making marginal losses
on every unit of output
between MR and MR1. In
the long run, the price and
quantity position for the
dairy farmer will be where
he makes a normal profit.
Achievement
Merit
Any THREE of:
Any TWO of:
 Average revenue
AND
marginal revenue
will not change
 Perfect
competitors are
price takers, and
reference to AR
and MR not
changing with
increased output
 AR / MR curve
placed in line with
market equilibrium
and labelled
AND
Pe and Qe identified
where MR = MC
 Supernormal profit
correctly identified
and labelled
 Qe is where
marginal revenue
is equal to marginal
cost
 Partial answer to
(d) including supply
increasing
AND
AR / MR / D / P
decreasing, leading
to decreased
output.
 Qe is where MR =
MC, and any
output
EITHER
below will result
in missing out on
marginal profits
OR
above making
marginal losses
 Explanation to
(d), which
includes
Achievement
response
AND
explanation of
more firms
entering due to
no barriers to
entry, and output
decreasing to
new profit
maximising
equilibrium
(MC = MR1)
 Correct changes
shown on
diagrams in
Appendix Three.
Changes must be
clearly marked
with new labels or
arrows to show
curve shifts.
Graphs 2 & 3
must line up
correctly.
Excellence
 Full explanation
in (d), including
Merit response
AND
farmer having
to reduce
output to avoid
making
marginal losses
on every unit
produced
between Qe
and Q1.
 Clear linking of
a correct
graphical
response is
made to the
written
response in (d).
NCEA Level 3 Economics (90629) 2011 — page 4 of 7
Code
Q
A3
FOUR
OR
(a)
See Appendix Four.
M3
(b)
The monopolist will produce
at output where MR = MC
which is Qe. At this output,
consumers will be willing and
able to pay price Pe.
Should include the idea of
the monopolist determining
the output, and consumers
determining the price.
Comments on the output
being above and below Qe.
OR
E3
(c)
(d)
Evidence
Monopoly firms have strong
barriers to entry. A monopoly
firm making supernormal
profits is likely to continue to
make supernormal profits, as
those barriers to entry will
prohibit new entrants into the
market.
An increase in demand will
cause both the AR and MR
curves to increase. Fonterra
will increase its output in
order to maximise profits
where the new MR curve
intersects the MC curve. If
Fonterra did not increase
output, it would be missing
out on marginal profits
between the old and new
MR / MC intersection. The
price will be determined
where the new quantity
intersects with the new AR
curve. This gives the price
that consumers will be willing
– and able – to pay for that
quantity. The price may be
more, equal or less than the
original price, depending on
how much the increase in
demand was.
Achievement
Merit
Any THREE of:
Any ONE of:
 AR curve correctly
drawn and located
so that the vertical
point above where
the MR curve
intersects the
output axis is
halfway along the
AR curve (allowing
for a small margin
of error)
 Pe is the price
that consumers
are willing and
able to pay for
Qe, which is the
profit
maximising
quantity, where
MC = MR in (b).
Pe and Qe must
be correct on
Graph Four
 AC curve correctly
located so that a
supernormal profit
is made and also
AC intersects MC
at the minimum AC
value
 Supernormal profit
identified and
labelled with Pe
and Qe correctly
identified
 Pe is the
corresponding
price that is
determined by the
Qe quantity where
MC = MR
 Monopolist will
continue to make a
supernormal profit
in the long-run
 Partial answer to
(d), AR and MR will
increase and
Quantity will
increase.
 Continue to
make a
supernormal
profit (these
must be
showing
correctly in
Graph Four)
because of
strong barriers
to entry in a
monopoly
market structure
in (c)
 Explanation to
(d), which
includes AR,
MR and Q
increasing and
referring to
Fonterra
increasing
output to where
MC = new MR
curve
Excellence
A full explanation
of (d), which
includes
requirement for
Merit plus the
idea of Fonterra
missing out on
marginal profits if
it doesn’t
increase output,
and reference to
price being
determined
where the new
MR / MC quantity
intersects with
the new AR
curve.
NCEA Level 3 Economics (90629) 2011 — page 5 of 7
Code
A1
Q
Evidence
One
Three
Four
NB if price takers or other
appropriate features of a
perfect competitor are
used in Question Three –
Parts (a) or (d)
Achievement
Merit
Excellence
OR
Strong barriers to entry
allowing supernormal
profits to continue in
Question Four (c)
This could then be used
as evidence of A1, if
evidence is missing from
Question One.
Judgement Statement
Achievement
Achievement with Merit
Achievement with Excellence
Minimum of:
Minimum of:
Minimum of:
1 A1
1 A1
1 A1
1 A2
1 M2
1 M2
1 A3
1 M3
1 E3
Codes:
A1 refers to the first criterion
A2 and M2 refer to the second criterion
A3, M3 and E3 refer to the third criterion
NCEA Level 3 Economics (90629) 2011 — page 6 of 7
Appendix One – Question Two (e) (i)
Output / day
(Bungy jumps)
Total Cost
($)
Total Variable
Cost
($)
Average
Variable Cost
($)
Average Cost
($)
Marginal Cost
($)
19
1 560.00
760.00
40.00
82.11
35.00
20
1 620.00
820.00
41.00
81.00
60.00
21
1 685.00
885.00
42.14
80.24
65.00
22
1 755.00
955.00
43.41
79.77
70.00
23
1 835.00
1 035.00
45.00
79.78
80.00
Appendix Two – Question Two (f)
Graph One: Freefall Bungy’s Supply Curve for Bungy Jumps
NCEA Level 3 Economics (90629) 2011 — page 7 of 7
Appendix Three – Question Three (b) and (d)
(Graphs must line up correctly)
Graph Two: An Individual Dairy Farmer
Appendix Four – Question Four (a)
Graph Three: The Market for Milk