Fish supply in Port Azure

Read the extracts and answer the questions that follow.

Text A — Costs and stocks

1. Fishing firms in Port Azure face higher fuel and refrigeration costs. Some firms have left the industry, while others have reduced the quantity of fish offered at every market price.

2. Fish can be frozen and stored. Expectations of higher prices during next month's festival have caused firms to withhold part of today's catch. A change in a condition other than fish's own price is a non-price determinant of supply.

Text B — Policy proposals

1. The government proposes a fuel subsidy and grants for energy-efficient refrigeration. It expects these measures to increase supply and reduce spoilage.

2. Environmental organizations argue that expanding current catches may damage fish stocks and reduce future productive capacity. They recommend limiting assistance to firms using sustainable methods. An increase in fish's current price would instead cause an extension of quantity supplied.

Table 1 — Daily individual supply

Daily quantity supplied by each fishing firm at a fish price of 12 azures per kilogram.

Table 2 — Refrigeration losses

Share of landed fish lost through spoilage under different refrigeration systems.

Construction materials in Urbania

Read the extracts and answer the questions that follow.

Text A — Housing inputs

1. Urbania's construction firms use the same land, machinery and workers to produce either standard bricks or decorative paving blocks. The products are therefore in competitive supply.

2. The price of paving blocks has risen. At the same time, imported clay and natural-gas prices have increased, raising the cost of producing bricks.

Text B — Increasing productive capacity

1. A new kiln uses less gas and can produce more bricks per hour. The government is considering subsidizing its installation and providing grants to new firms entering the brick industry.

2. Critics argue that grants may support firms that would have entered without assistance. They also note that the number offered at one particular price is quantity supplied, not the entire supply relationship.

Table 1 — Weekly brick supply by firms

Weekly brick supply by firm at 2 urbans per brick.

Table 2 — Kiln productivity

Hourly brick output for old and new kilns.

Generic medicines in Medoria

Read the extracts and answer the questions that follow.

Text A — Pharmaceutical production

1. Medoria imports active pharmaceutical ingredients used by domestic medicine producers. Depreciation of its currency has made these inputs more expensive, reducing firms' willingness to supply medicines at each price.

2. A digital quality-control system could reduce rejected batches. Improved production methods may therefore cause an increase in supply.

Text B — Government response

1. The government proposes removing an indirect tax on generic medicines and offering temporary payments to producers. It also wants to accelerate licensing for new firms.

2. Health organizations support lower production costs but warn that assistance must maintain safety standards. Producers argue that individual supply will remain constrained until technicians are trained and imported ingredients become cheaper.

Table 1 — Monthly supply by producers

Monthly quantities of generic medicine packs supplied by each producer at a price of 20 medors per pack.

Table 2 — Rejected production batches

Rejected production batches before and after digital quality control.

Coffee supply in San Aurelio

Coffee beans can be stored after harvesting. Farmers in San Aurelio expect the market price of coffee to rise next month and are considering withholding some current stocks. Coffee processing also produces coffee husks, which are sold to manufacturers of fuel pellets.

Table 1: Current monthly coffee supply before planned withholding

Table 1. Monthly coffee quantities supplied by each farm before planned withholding at the listed prices; withholding percentages apply to the farm quantities shown. For the revenue calculation, the price remains 3000 aurels per tonne.

At the current price of 3000 aurels per tonne, Farm A plans to withhold 20% of the quantity shown for Farm A in Table 1, Farm B plans to withhold 10% of the quantity shown for Farm B in Table 1, and Farm C plans to sell all its coffee. The government is considering policies to stabilize current coffee supply.

Oyster farming in Costara

Costara has 40 oyster farms. Each initially uses the same production methods. A new water-monitoring technology increases each farm's output at every oyster price. Eight additional farms are also considering entering the market.

Table 1: Individual weekly oyster supply

Individual weekly oyster supply before and after adoption of water-monitoring technology.

The government wishes to increase oyster supply while requiring any financial support to be assessed for cost-effectiveness.

Bread production in Arandia

Read the extracts and answer the questions that follow.

Text A — A short-run production problem

1. Arandian bakeries cannot immediately enlarge their ovens or premises. Oven capacity is therefore a fixed factor in the short run, while labour hours and flour can be varied.

2. As more workers are added to an unchanged bakery, specialization initially raises output. Eventually workers compete for oven space, and the additional output produced by each extra worker declines.

Text B — Costs and supply

1. The decline in extra output illustrates diminishing marginal returns. If the hourly wage is unchanged, progressively more labour is required to produce each additional batch, causing marginal cost to rise.

2. The government is considering grants for larger ovens and training in automated dough preparation. Bakeries also face higher flour prices following a poor harvest.

Table 1 — Output from additional workers

Daily total bread output for different numbers of workers.

Table 2 — Supply by bakeries

Daily bread quantities supplied by three bakeries at a price of 3 arans per loaf.

Greenhouse tomatoes in Veridia

Read the extracts and answer the questions that follow.

Text A — Labour and greenhouse capacity

1. Tomato farms can change the number of workers within a season, making labour a variable factor. Greenhouse space and installed irrigation equipment cannot be changed during that season.

2. When additional workers are employed, total tomato output continues to increase, but eventually it increases more slowly because workers share a limited growing area.

Text B — Policy and technology

1. The extra cost of producing one more crate is the farm's marginal cost. Falling marginal output means that more paid labour is required for each additional crate, causing marginal cost to rise.

2. The government proposes grants for automated irrigation and a subsidy for greenhouse construction. Water charges have also risen, while several farms expect tomato prices to be higher next month and can delay harvesting some varieties.

Table 1 — Labour and weekly output

Weekly total tomato output for different numbers of workers.

Table 2 — Farm supply

Weekly tomato supply by farm at a price of 24 verids per crate.

Microchip assembly in Technovia

Read the extracts and answer the questions that follow. Parts (a) to (f) form the data-response section. Part (g) is a separate 15-mark extended-response question.

Text A — Short-run capacity

1. Technovian assembly plants can hire additional technicians but cannot immediately install more clean-room space. The short run is therefore a period in which at least one factor is fixed.

2. As technicians are added, congestion eventually reduces the marginal return from each additional technician. Total output may continue rising even though each addition becomes smaller.

Text B — Supply conditions

1. The plants seek to maximize profit. As marginal costs rise near capacity, a higher chip price is required before firms are willing to produce additional units.

2. The government proposes tax relief for clean-room investment and training grants, and support for adoption of a new automated testing system. Imported component prices have increased, but the automated testing system could reduce defects.

Table 1 — Technicians and daily output

Daily total chip output for different numbers of technicians.

Table 2 — Defect rates

Defective and saleable microchips before and after automated testing, assuming automation costs are outweighed by savings from fewer defects.

Question 1 (21 marks) — Milk and cheese production in Lactavia

Read the extracts and answer the questions that follow. The material is divided into two Paper 2 data-response questions. Question 1 consists of parts (a) to (e) and is worth 21 marks. Question 2 consists of parts (f) and (g) and is worth 19 marks.

Text A — Dairy production

1. Dairy farms produce raw milk, part of which is processed into cheese and whey. Cheese and whey are in joint supply because they emerge from the same production process.

2. In the short run, herd size and milking facilities are fixed. Hiring more workers eventually causes the law of diminishing marginal returns to operate as workers share the same equipment.

Text B — Supply incentives

1. Higher cheese prices cause an increase in cheese quantity supplied. More cheese production simultaneously creates additional whey, shifting the supply of whey.

2. The government proposes milking-technology grants and a subsidy for each litre of milk. Feed prices have risen, and some farms may switch land from dairy farming to higher-priced grain production.

Table 1 — Workers and daily milk output

Daily total milk output by number of workers on a dairy farm.

Table 2 — Dairy-farm supply

Daily milk supplied by three dairy farms at a price of 0.60 lactars per litre.

Furniture production in Timberland

Read the extracts and answer the questions that follow.

Text A — Workshops and output

1. Furniture workshops use the same carpenters and machinery to make desks or cabinets. A rise in cabinet prices has encouraged workshops to transfer resources away from desk production.

2. In the short run, machinery is fixed while labour is variable. Beyond a certain workforce, congestion results in diminishing returns and increasing marginal costs.

Text B — Market supply

1. Market supply is constructed through horizontal summation of the quantities offered by each workshop at every price.

2. The government proposes grants for computer-controlled cutting machines and training. Timber prices have increased, while new low-cost workshops may enter the desk market.

Table 1 — Workers and output

Daily total desk output by number of workers.

Table 2 — Workshop desk quantities supplied

Weekly desk quantity supplied by each workshop at a price of 180 timbers per desk.

Bread supply in Montara

Bread producers in Montara have experienced rising flour and electricity costs. Table 1 shows the daily individual supply schedules of two existing bakeries and a bakery considering entry into the market.

Table 1: Individual supply of bread

Individual daily supply schedules for three bakeries at different bread prices.

The government is considering a production subsidy to maintain the affordability and availability of bread.

One bakery has a fixed number of ovens in the short run. Each worker is paid 96 Montaran pesos per day. Table 2 shows the relationship between the number of workers and total daily output.

Table 2: Workers and bread output

Daily bread output for different numbers of workers employed.

Batteries and solar panels in Belland

A Belland manufacturer uses the same workers and machinery to produce solar panels and household batteries. It has 12 000 machine-hours available each month. A solar panel requires 6 machine-hours and a battery requires 4 machine-hours.

For this question, assume that this manufacturer is the only producer of household batteries in Belland, so its battery output represents market supply.

Initially, the firm produces 1000 solar panels and 1500 batteries. Following an increase in the price of solar panels, it reallocates 2400 machine-hours from battery production to solar-panel production.

Table 1: Monthly market supply of batteries after reallocation

Monthly market supply of batteries after resources are reallocated to solar-panel production.

The government is considering a subsidy of 50 Belland dollars per battery to maintain battery supply.

Ceramic tiles in Darsana

Ceramic-tile producers in Darsana face an indirect tax of 10 dinars per box. Energy costs have also increased by 5 dinars per box. The industry's supply curve before either cost increase is linear between the observations in Table 1.

Table 1: Market supply before the cost increases

Market supply before the indirect tax and energy-cost increase.

The government is considering temporary assistance to prevent a large reduction in ceramic-tile supply.

Tomato supply in Estavia

Greenhouse tomato producers in Estavia cannot expand greenhouse space in the short run. They can hire additional workers at a wage of 120 Estavian crowns per day. Table 1 shows daily output for a representative greenhouse.

Table 1: Labour and tomato output

Daily labour input and total tomato output for a representative greenhouse.

A new automated irrigation system would increase the quantity supplied by each greenhouse at every price. Table 2 shows the representative greenhouse's supply before and after adoption.

Table 2: Individual weekly tomato supply

Individual greenhouse weekly tomato supply before and after automated irrigation.

The government is considering financial support for automated irrigation systems.

Copper supply in Mineria

Read the extracts and answer the questions that follow.

Text A — Mining in the short run

1. Mineria's copper mines cannot quickly expand shafts or processing plants. These fixed factors limit capacity, although firms can employ additional workers and use more energy.

2. When extra workers are added to fixed machinery, the additional copper produced eventually declines. This is consistent with firms operating under the assumption of profit maximization and facing rising marginal costs at high output.

Text B — Current and future supply

1. Copper can be stored. Expectations of higher future prices have led firms to reduce current supply. Electricity prices have also risen, increasing processing costs.

2. The government proposes accelerated approval for new mines and tax credits for energy-efficient machinery. Environmental groups argue that rapid entry may create long-term land and water damage.

Table 1 — Employment and weekly copper output

Weekly copper output at different employment levels in Mineria.

Table 2 — Mine supply

Weekly copper supply from each mine at a market price of USD 7000 per tonne.