QUESTION FOUR A management economist wishes to do a cost analysis for his company for planning and decision naking purposes. Using the below given data: Output & 1 & 2 & 3 & 4 & 5 & 6 & 7 & 8 & 9 & 10 Fotal Cost & 60 & 80 & 90 & 96 & 100 & 144 & 210 & 320 & 540 & 900 Average cost & & & & & & & & & & Marginal cost & & & & & & & & & & a) Calculate the average cost and Marginal cost (10 marks) b) Explain the average - Marginal cost relationship using a diagram and advice the company (5 marks) QUESTION FIVE a) Highlight SIX characteristics of a perfectly competitive market. (6 marks) b) Discuss the following pricing strategies i. Price discrimination (3 marks) ii. Commodity bundling pricing (3 marks) iii. Block Pricing (3 marks) QUESTION SIX Governments are involved in the private sector due to market not clearing. Discuss with the managers attending a business conference under the theme "The role of government in the market "lace" a) The causes of market failure (10 marks) b) Government policies and interventions used to rectify market failures (5 marks)

QUESTION FOUR<br /><br />a) To calculate the average cost and marginal cost, we need to use the given data for total cost and output.<br /><br />Average Cost = Total Cost / Output<br />Marginal Cost = Change in Total Cost / Change in Output<br /><br />Using the given data, we can calculate the average cost and marginal cost as follows:<br /><br />\begin{array}{|l|l|l|l|l|l|l|l|l|l|l|}<br\ />\hline\ Output\ &\ 1\ &\ 2\ &\ 3\ &\ 4\ &\ 5\ &\ 6\ &\ 7\ &\ 8\ &\ 9\ &\ 10\ \\<br\ />\hline\ Total\ Cost\ &\ 60\ &\ 80\ &\ 90\ &\ 96\ &\ 100\ &\ 144\ &\ 210\ &\ 320\ &\ 540\ &\ 900\ \\<br\ />\hline\ Average\ Cost\ &\ 60\ &\ 40\ &\ 30\ &\ 24\ &\ 20\ &\ 24\ &\ 30\ &\ 40\ &\ 60\ &\ 90\ \\<br\ />\hline\ Marginal\ Cost\ &\ -\ &\ 20\ &\ 10\ &\ 6\ &\ 4\ &\ 44\ &\ 66\ &\ 110\ &\ 220\ &\ 360\ \\<br\ />\hline<br\ />\end{array}<br /><br />b) The average-marginal cost relationship can be represented using a diagram. The diagram would show the average cost curve and the marginal cost curve. The average cost curve typically has a U-shape, while the marginal cost curve is usually upward sloping.<br /><br />The relationship between average cost and marginal cost is that the marginal cost curve intersects the average cost curve at its minimum point. This means that when the marginal cost is less than the average cost, the average cost is decreasing, and when the marginal cost is greater than the average cost, the average cost is increasing.<br /><br />Based on this relationship, the company should aim to operate in the range where the marginal cost is less than the average cost, as this will result in a decreasing average cost and lower overall costs.<br /><br />QUESTION FIVE<br /><br />a) The six characteristics of a perfectly competitive market are:<br />1. Large number of buyers and sellers<br />2. Homogeneous products<br />3. Free entry and exit<br />4. Perfect information<br />5. Price-taking behavior<br />6. Profit maximization<br /><br />b) i. Price discrimination: This is a pricing strategy where a firm charges different prices for the same product or service based on the willingness of the consumer to pay. It allows the firm to capture more consumer surplus and increase profits.<br /><br />ii. Commodity bundling pricing: This is a pricing strategy where a firm offers a package of products or services at a lower price than if the consumer purchased them individually. It encourages consumers to buy more products or services from the firm.<br /><br />iii. Block Pricing: This is a pricing strategy where a firm charges a lower price for purchasing a larger quantity of a product or service. It encourages consumers to buy in bulk and can lead to increased sales for the firm.<br /><br />QUESTION SIX<br /><br />a) The causes of market failure include:<br />1. Externalities: When the actions of one party affect the well-being of another party without being reflected in market prices.<br />2. Imperfect information: When one party has more or better information than the other, leading to an imbalance of power in the transaction.<br /> Mon: When a single firm dominates the market, leading to reduced competition and higher prices.<br />4. Public goods: Goods that are non-excludable and non-rivalrous, making it difficult for the market to allocate them efficiently.<br />5. Market power: When a firm has the ability to influence the market price of a product or service.<br /><br />b) Government policies and interventions used to rectify market failures include:<br />1. Regulation: Implementing rules and regulations to address externalities, such as pollution taxes or emission standards.<br />2. Taxation: Imposing taxes on goods or activities that generate negative externalities, such as tobacco or carbon emissions.<br />3. Subsidies: Providing financial assistance to encourage the production or consumption of goods or services that generate positive externalities, such as renewable energy or education.<br />4. Government provision: Directly providing public goods or services, such as national defense or public parks.<br />5. Antitrust laws: Enforcing laws to prevent monopolies and promote competition in the market.