(i). Explain the difference between accounting profit and economic profit. Include discussion of the distinction between explicit and implicit costs and how they relate to economic cost and opportunity cost. [5 marks]

(ii). Suppose your aunt is thinking about opening a hardware store. She estimates that it would cost $ 500,000 per year to rent the store and buy the stock. In addition, she would have to quit her $ 510,000 per year job as an accountant.

What is your aunt’s opportunity cost of running a hardware store for a year? If your aunt thought she could sell $ 510,000 worth of merchandise in a year, should she open the store? Explain.

[5 marks]

(iii). Compare and contrast the two market structures: Perfect Competition and Monopoly, in line with main characteristics of them. Comment of the Price and profit maximising output level in the two structures. [5 marks]

(iv). Which market structure is considered to be more efficient? Justify your answer [3 marks]

(v). List down two closest real world examples for each of these market structures. [2 marks]

(vi). Do you believe that the government should intervene to control the monopoly power in the market. You need to argue for/justify your answer. [5 marks]

(vii). In a free market system, why does the government have to provide certain goods and services using tax payers money? Is there any justification? Explain providing examples.

[5 marks]

Page 3 of 4

Practice work for the above activity (2):

? Study Module Topic 1: Self assessment questions 1 and 2; Study Module Topic 4.1, Self assessment questions 1;

? Textbook: REVIEW QUIZEs 1-5, p.284; REVIEW QUIZES 1-3 p.307 and REVIEW QUIZES 1-3 p.311; Study Plan Problems & Applications 7-8, p. 327;

? Textbook: REVIEW QUIZEZs 1, 3, and 4, p.219; REVIEW QUIZEZs 1-4. P.224; Study Plan Problems & Applications 6-10, p.235.

? Textbook: REVIEW QUIZEZs 1, 3, and 4, p.176; and REVIEW QUIZEZs 1 and 4. P.180; Additional Problems & Applications 17,p.191.

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