Gce Model Questions Vol1 2022 Economics Question 3

Practice objective / multiple choice question 3 from the 2022 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2022 Economics Objective / Multiple Choice Hard Difficulty
Question 3 GCE_MODEL_QUESTIONS_VOL1 • 2022 • ECONOMICS • objective

A car manufacturer's total cost (in thousand Naira) for producing \(Q\) thousand cars is given by \(TC = 0.02Q^{3} - 0.3Q^{2} + 15Q + 200\). The government introduces a per‑unit tax of \(0.5\) thousand Naira. (a) Write the new total‑cost function including the tax. (b) Find the output level that minimises average total cost (ATC) after the tax and compute this minimum ATC. (c) At that output, does the firm experience economies of scale? Explain briefly.

Answer Options

Correct Answer A. New TC: \(0.02Q^{3}-0.3Q^{2}+15.5Q+200\). Minimum ATC occurs at \(Q=20\) (20 000 cars) with ATC = \(27.5\) thousand Naira per car. At this output the firm is at the ATC minimum, so it does not experience economies of scale (they are neutral).
B. New TC: \(0.02Q^{3}-0.3Q^{2}+15.5Q+200\). Minimum ATC occurs at \(Q=20\) (20 000 cars) with ATC = \(25\) thousand Naira per car. At this output the firm experiences diseconomies of scale.
C. New TC: \(0.02Q^{3}-0.3Q^{2}+15.0Q+200\). Minimum ATC occurs at \(Q=20\) (20 000 cars) with ATC = \(27.5\) thousand Naira per car. At this output the firm experiences economies of scale.
D. New TC: \(0.02Q^{3}-0.3Q^{2}+15.5Q+200\). Minimum ATC occurs at \(Q=15\) (15 000 cars) with ATC = \(30\) thousand Naira per car. At this output the firm experiences economies of scale.
Correct Answer
A
Correct Option:
New TC: \(0.02Q^{3}-0.3Q^{2}+15.5Q+200\). Minimum ATC occurs at \(Q=20\) (20 000 cars) with ATC = \(27.5\) thousand Naira per car. At this output the firm is at the ATC minimum, so it does not experience economies of scale (they are neutral).

About This Question

This is Gce Model Questions Vol1 2022 Economics Question 3. It is one of the objective questions from the 2022 Gce Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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