The marginal utility of a product 1 . - -I, l o a consum •

What d0es t 1is indicate? ' er 1s zero.

A Tota.I utili ty is also zero B Total utility is maximised C The product is free

D The consumer is in equilibrium w·tl 1 _ 1 1 t 1e product A person allocates her t:A'nenditure betw h i -~ . ~t~ products, X, Y and Z. The table below sh , h . ..

d d h , ows t e pnces ot

the pro ucts an t e marginal utilities ti , . ,. 1e person gams.

Product X y Z

Price($)

Marginal utility (units)

10

so l

8

2

10

How should the person's spending alter in order to maximise her utility?

X A More B More C Less

y

Less Less More

z More Less More

D Less More Less

3. Basic food products such as rice and bread are cheaper

than diamonds. This is despite basic food products

being more essential to people's lives than diamonds.

What could explain this paradox of value?

A Basic food products are a necessity whereas

diamonds are a want B Diamonds are in greater supply than basic food

products C There is a difference in market structures

D There is a difference between total and marginal

utility

4. In Figure 13.12 the consumer's initial budget line is MN

Quantity of V GoodY p

M

s

0

Figure 13.12

T U Quantity of Good X

·the con~umcr 's mnncv i r,rlifilc decrt.t.:-t't. tht:rr ,~ '

no chungl' in the prier ()f gonJ X hut ~od Y heconic.,

cheaper. Wh.,t could lw the consumer's nt·w bud~ct line?

A PR B ST CUT 0 MV

S. The table shows the short run marginal cost of .. producing product X.

Units of X Margin.ii cost (S)

2

3

4

5

40

30

30

60

80

Total fixed cost is $20. At what level of output is short

run average total cost lowest? A 2 units B 3 units C 4 units D 5 units

6. When a firm produces five units of a product. its

average fixed cost is $20 and its average variable cost is

$90. When it increases its output to sLx units, its average

fixed cost falls to $18 and its average variable cost falls

to $80. What is the marginal cost of-producing the

sixth unit? A -$12 B $8 C $30 D $38

7. A firm's total fixed cost is $8,000. Its average total cost is

$10 and its average variable cost is $8. What is the firm's

output? A 800 units B 1,000 units C 4,000 units D 8,000 units

8. When do diminishing returns occur? A Adding extra units of a variable factor of production

to a fixed factor causes a fall in marginal output

B Changing all the factors of production employed

results in a less than proportionate increase in output

C Increasing demand starts to slow down D Increasing output results in costs rising more rapidly

than revenue

4, Whot dnes the law o( diminiqhing returns Imply: the A All factor~"( production ubed can be va ried m

,.hnrt nm . H At least one factor of production used is ftxed m the

c;hort run C 'lotal fixed cost increases at an increasing rate D Tota l variable cost increases at a decreasing rate

IO. The table below shows what happens to the output of apples as a farm takes on more workers.

:'\o. of ''°rf..cr~ Output (tonne~ of apple, per week)

]

2

3

4.

5

100

250

450

600

700

Between which levels of output do diminishing returns set in? A 100 and 250 tonnes B 250 and 450 units C 450 and 600 units D 600 and 700 units

I J. What would cause the demand curve for labour to shift to the right? A A decrease in demand for the final product B A decrease in labour mobility C An increase in labour productivity D An increase in wages

12. The table below shows the output of handbags of a firm in relation to the number of workers it employs.

No. of ,rnrkcr, Total output Output per per day worker

20 20 2 50 25 3 90 30 4 120 30 5 140 28

What i.s the marginal product of the third worker employed? A 5 units B 10 uniu C 30 units D 40 units

13. A firm employs two varinble factors of production, Y and Z. Factor Y costs $5 per unit and fac tor z $S per unit The marginal product of factor y is 35 unit s and the marginal product of factor z is 40 uni ts. What should the firm do to minimise its costs of production?

A Fm ploy more of fa l tor y ;:i nd lcciq qf f B Employ more of fa ctor '/, and le~<. f act,,r 'I.

E I I f b O fa ct,,r y

C mp oy css o oth factor y ,ind r ~ , il Ctor '/

D Employ more of both fa ctor y an J r_ , ( rt1ct11r '/

14. Figure 13. 13 shows a supply curve fr I 1. ' " r atJou r.

Wage rate s

w~--- - -------

s

l

0 Quantity of labo;;-1

Figure 13.13

What happens when the wage rate rises from W to W,? A Capital is substituted for labour · B Hours of leisure become more highly valued C The occupational mobility of labour decreases D The substitution effect becomes stronger relative to

the income effect

15. Figure 13.14 shows a labour market in which a trade union has successfully negotiated a wage rise from W to Wt·

Wage rate D / s W1 T

w u V

/ //

// j s

l " s ~

0 X y z

Figure 13.14

h, dil\i.l f\\1\\ indk,\h' " 'ill hl' th,· n',ult 01 11 , f ('f~ I l l"I I I l

,,~'.',.ht' "~,,~t· , .. ,td ri~" 11\

1 ,n,if rfl\l (' ll i'-')'Cd by w,wk,·r~ wi II in~ re ,I Sl' h,· r,"'n' .

,&. , · ~r · 111· z ,. I' I "ntt•nt '"ill tn t\ ,m . In , fill!' (l~ A 'II ·I . ' ' ll , ,

1,I\' 01 h,hf,ur w, , mngl' tl'\m, SS 10 \\I TS

' l ht' :-\\l ' l . I

, tal ""'~t: 1'il\ will c l ,\l\!,l.l: tn,m OW\'\' lo I l 1nf 10.: c- '

l)\\' 17. .. •\Ire 1\.15 !-how~ s fir~,~ oprrnti_ng In a perfc(tly .

1~ Fl~ ·titi\'~ tmlrket for its produd ~md a monopolistic 8•n'r<' , .. rkt't What will be thr wt,gr rate priid to I b(lltrtl " . . . " ..i •. • i,nJ the qu,mtity ot labour employed? \\'() [l\"t:'n-

MCL

, ACL r--­

s-----.ii-----r-;;:~

R

D=MRPL

0 X y z Quantity of labour

Figure 13.15

Wage rate A R B s

Quantity of labour y

z C T y

D s X

Ii . Which of the following may have monopsony power in

a national labour market?

A A national trade union B Thearmy C The sole seller of a particular brand of orange juice

D Workers who possess skills in high demand

1 18· Figure 13.16 shows the effect of an increase in demand

for accountants on the market for accountants.

What is the increase in economic rent earned by accountants? A NPST B QRST C NPSVUT D TSUV

\ 19. In Which . . uld th . troduction of a national circumstance wo e m

I t1

lllinimum wage be accompanied by a rise in emp oymen ·

A. It increases demand for labour B It is at a level below the equilibrium level

~ Demand for labour is elas~ic Supply of labour is inelastic

R

Q .

p

N

M

I

0

I T

_J_ _j_

U V

Supply

o,

Demand

Ouant1ty of labour

Figure 13.16

20. What is the relationship between average cost and

marginal cost of production if average cost is falling?

A Marginal cost must be below average cost

B Marginal cost must be above average cost

C Marginal must be equal to average cost

D Marginal cost may be above or below average cost

21. The owner of a small private beach decides to charge

tourists for its use. There is a fixed cost but no variable

cost in allowing people to use the beach. What should

the owner do to maximise her profits?

A Attract as many tourists as possible B Charge the highest price possible C Minimise total cost D Maximise total revenue

22. In an industry wage rates increased from $10 an hour to

$13 an hour, output per worker increased by 15% and

the number of hours worked decreased from 40 hours

to 38 hours and raw material costs increased by 5%.

What happened to labour costs and total output?

Labour costs Total output

A Decreased Decreased B Decreased Increased C Increased Increased D Increased Decreased

23. A firm's average revenue is less than average cost What

condition is necessary for the firm to continue in

business in the short run?

24.

A Average revenue is greater than average fixed cost

B Averclge revenue is greater than average variable cost

c Average revenue is greater than margin.tl cost

D Average revenue is gr~ater than marginal rewnue

What is the short run suppl)' curve of a perfectly

competitive firm based on~ A Its marginal cost curve noO\-e its an•rage \"ariable

cost curve B Its marginal c~t curve above its avt>rage total c.ost curYe

C Its average variable cost curve

D Its average total cost curve

25. What is a characteristic of monopolistic competition?

A Average revenue exceeds average cost in the long run

B Firms can make supernormal profit in the long run

C High barriers to entry and exit

D Products are differentiated

26. Figure 13.17 shows a firm producing under conditions

of monopolistic competition in the short run. Which

area shows the firm's total cost at the profit maximising

output?

Costs/ Revenue

H t--__ ____,, __ _,,_ ,

G t-----__,,,__,...,.._-+--..,,_-

F t=========::s;::::'.'.~'.,...,­E

0 MN

Figure 13.17

A OFKM B FHIK C OECN D EGJL

AC

AR

MR Output

27. If a profitable monopolist changes its objective from

profit maximisation to sales maximisation, what change

will it make to price and output?

Price Output

A Decrease Decrease

B Decrease Increase

C Increase Increase

D Increase Decrease

28. Firms in an industry collude and charge a common

price of P. Each firm agrees to restrict its output to a

production quota determined by the industry cartel.

The firm is given a quota of Q as shown in Figure 13.18.

What is the maximum short run increase in

supernormal profit the firm could receive by cheating

on the agreement?

A JKLM B JKLM-HMNG C JKLM+HMNG D HMNG

costs revenue

p

H

J

M

G L--------,--.

0

Figure 13.18

a

MC AC

OutPUt

29. Figure 13.19 shows the output of a monopolist. If it

produces at the profit maximising output, what is the

gap between its output and the allocatively efficient

output?

Costs/ Revenue

60

Figure 13.19

A VW B VY C XY D XZ

AC

AR

V X Y Z MR

f testable 30. What is a defining characteristic o a con

market? 1 • the

A It is possible to transfer the fixed capita 111

Output

industry to alternative uses ounts on B The firms in the industry spend large arn

advertising C 1bere is only one firm in the indu5lr~ the

entry into d strV D Whilst there are no barriers to the in 11 '

. xit frorn _/ industry, there are barners to e ~