REDEEMER S UNIVERSITY

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1 REDEEMER S UNIVERSITY Km 46/48 Lagos Ibadan Expressway, Redemption City, Ogun State COLLEGE OF MANAGEMENT SCIENCE DEPARTMENT OF ECONOMICS AND BUSINESS STUDIES COURSE CODE /TITLE ECO 202/Microeconomics II SECOND SEMESTER EXAMINATIONS 2013/0214 SESSION INSTRUCTIONS ON CHOICE OF QUESTIONS TO BE ANSWERED ANSWER ALL QUESTIONS IN SECTION A AND ONE QUESTION IN SECTION B TIME ALLOWED 2 HOURS SECTION A 1. In the short run, a firm s fixed cost a. is zero. b. cannot be escaped. c. can be escaped only by cutting production to zero. d. is not correctly described by any of the above. 2. When average total cost rises from N10 to N30 as total production rises from 100 to 300 units, average variable cost a. cannot be calculated. b. equals N10. c. equals N20. d. equals N30 3. The cost of producing an additional unit of output is a. Average cost. b. Marginal cost. c. Short-run cost. d. Long-run cost 4.The cost that varies with the level of output of the firm and will be equal to zero when output is zero is a. Variable cost. b. Marginal cost. c. Average cost. d. Scaling cost. 5. The basic characteristic of the long run is that enterprises do not have any..; all are variable a. Marginal cost. b. Fixed cost. c. Budget Cost. d. Average cost The value of inputs owned and used by the firm in its own production activity are a. Sunk cost. b. Explicit cost. c. Implicit cost. d. Private cost. 7. A firm operating in a perfect market maximizes its profit by adjusting a. its output price until it exceeds average total cost as much as possible. b. its output price until it exceeds marginal cost as much as possible. 1

2 c. its output until its marginal cost equals output price. d. its output until its average total cost is minimized. 8. In the short run, no firm operates with a loss, unless a. variable cost equals fixed cost. b. variable cost falls short of fixed cost. c. total revenue covers variable costs. d. total revenue covers fixed cost. 9. For a firm operating in a perfect market, its short-run supply is identical with the rising arm of a. its marginal-cost curve. b. its average-fixed-cost curve. c. its average-total-cost curve. 10. Being a price taker in a market means that the seller a. charges each consumer the maximum that she will be3 able to pay for the product. b. has no choice but to charge the equilibrium price that results from the market supply and demand curves. c. takes her price from her average total cost curve. d. sells her products at different prices to different customers. 11. The statement that marginal cost = marginal revenue leads to profit maximization or loss minimization is true a. all the time. b. only in the long run. c. only if marginal cost is rising at the point of equality. d. only if average total cost is falling at the point of equality. 12. In perfect competition, when economic profits exist in the short run, they are very tenuous because a. costs will inevitably increase and eliminate profit. b. price will fall because market supply will increase. c. firms are driven to increase output in the short run to the point where average total cost will equal price. d. firms are driven in the short run to reduce output until average total cost equals price. 13. When a profit-maximizing firm is at its short-run optimum point, a. the average cost of the product is at its lowest possible point whether a profit is being made or not. b. the firm will be shut down if its price is less than the average fixed cost. c. the profit per unit of output will be at its maximum possible level. d. all the above will be true. e. none of the above will be true. 14. In the long run, a profit-maximizing monopoly produces an output that a. equates long-run marginal cost with marginal revenue. 2

3 b. equates long-run average total cost with average revenue. c. assures permanent positive profit. d. is correctly described by both (a) and (c). 15. With respect to price elasticity, it is true that a. monopoly market demand needs not be less elastic than market demand in a competitive industry. b. monopoly firms face less elastic demand than do competitive firms. c. a monopolist should not produce where demand is inelastic. d. all the above are correct statements. 16. A monopolist will maximize profit a. where total revenue is maximized. b. where the slope of the total revenue function equals the slope of the total cost function. c. where average cost is at a minimum. d. where all the above are true. e. somewhere other than the solutions listed because none of them is true. 17. If a monopolist s demand curve is downward sloping and linear, then its total revenue curve must be a. identical to the demand curve. b. a ray from the origin with a slope equal to price. c. negatively sloped with twice the slope of the demand curve. d. a rising function of output that increases at an increasing rate. e. a rising function of output that increases at a decreasing rate, reaches a maximum, then falls. 18. All of the following are true about a monopolist except a. average and marginal revenue are not the same. b. marginal revenue is greater than price. c. marginal revenue is zero if price elasticity of demand equals 1. d. marginal revenue decreases with increases in output. e. marginal revenue can be negative. 19. Suppose that an excise tax is imposed on the monopolist s product. If the monopolist s marginal cost is horizontal in the relevant range, which of the following statements must be true? a. The price will increase by an amount less than the tax. b. The price will increase by an amount equal to the tax. c. The price will increase by an amount greater than the tax. d. The price may either increase or decrease. e. An excise tax will have no effect on the price-output decision of a monopolist. 20. Which of the following is not true? a. A monopolist typically seeks to maximize profits. b. A monopolist sets price as high as possible. c. A monopolist may engage in advertising. 3

4 d. Monopolists price on the elastic portion of their demand curves. e. Profits are not guaranteed even if the firm is a monopolist. 21. Since entry is barred in a monopoly, in the long run the monopolist will a. do nothing since entry will not force an adjustment. b. adjust output but leave the price at the short run profit maximizing level. c. adjust price but leave the output at the short run profit maximizing level. d. adjust both price and output levels to reflect long run scale of plant adjustments. e. set price equal to long run average costs. 22. If the monopolist maximizes profits when marginal revenue equals marginal cost equals average cost,economic profits must be a. negative. b. positive. c. zero. d. either (a) or (c). e. cannot tell from the information given. 23. A monopolist will discontinue production if a. marginal revenue is less than marginal cost. b. marginal revenue is less than average total cost. c. marginal revenue is less than average fixed cost. d. price is less than average total cost. e. price is less than average variable cost. 24. The supply curve for a monopolist a. is equal to the marginal cost curve above the average variable cost curve. b. is equal to the marginal cost curve above the average cost curve. c. cannot be uniquely determined. d. is equal to the average variable cost curve above the marginal cost curve. e. is typically perfectly inelastic. 25. If a monopoly is unable to cover its short-run variable costs, it should a. shut down. b. raise price. c. lower price. d. increase output. e. reduce output. 26. Price discrimination is a. illegal. b. a technique that can improve the firm s revenue and profit performance. c. immoral in most cases. d. impossible if consumers have perfect information. e. difficult to administer 27. A monopolistically competitive market is characterized by all of the following except 4

5 a. easy entry. b. differentiated products. c. excess capacity. d. economic profit in the long run. 28. An oligopolistic industry can be characterized by all of the following except a. many sellers. b. mutual interdependence. c. economies of scale. d. a homogenous product. 29. The kinked demand curve faced by an oligopolist is based on the assumption that a. rivals will follow a price increase but not a price cut. b. rivals will follow a price decrease but not a price increase. c. rivals will follow both a price decrease and a price increase. d. rivals will ignore both a price increase and a price decrease. 30. A common criticism of the kinked demand curve model is that a. it does not explain the interdependence of the demand curve. b. it does not explain why costs remain rigid in the face of changing demand. c. it does not explain how price was determined d. none of the above. 31. The conditions for profit maximization by a firm is that a. MC = AR and MC cuts MR from below b. MC = MR and MC cuts MR from above c. MC = MR and MC cuts MR from below.d. MC = AC and AR cuts MC from below 32. Which of the following is not a characteristic of perfect competition? a. Large number of buyers and sellers b. Existence of only zero profit in the short-run c. Uniform price d. Free entry and free exit 33. Product differentiation is a typical feature of a. Perfect competition b. Oligopoly c. Monopoly d. Monopolistic competition 34. In a perfectly competitive market the film is in the long-run equilibrium when a. There are excess profits b. MR = ATC = MC = P c. Price is Stable d. The price is greater than average cost 35. When the monopolist equates MC to MR the firm would be 5

6 a. Maximizing output b. Minimizing cost c. Maximizing profit d. Maximizing Sales 36.. line shows the combination of two inputs that will cost the firm the same amount a. Isoquant line b. Budget line c. Production line d. Isocost line 37. Which of these is not a characteristic of Isoquant? a. Isoquant is negatively slope b. Isoquant does not intercept each other c. Isoquant is convex to the origin d. Isoquant intercepts each other 38. ``A profit maximizing firm will always produce a. Where marginal cost is less than to Marginal revenue b. Where marginal revenue is equal to marginal cost c. At a point of minimum average cost d. Where marginal cost is greater than marginal revenue 39. is the change in total output due to change in the quantity of an output a. Total product b. Marginal product of labour c. Marginal product of capital d. Marginal product 40. Who is the originator of the theory of monopolistic competition? a. R. A. Musgrave b. J. M. Keynes c. E. H. Chamberlin d. Joan Robinson SECTION B Answer One Question 1. (a) Define Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly. (b) Show the graphs of how firms maximize profit under Perfect Competition and Monopoly 2. Explain with diagrams the followings: (i) Isoquant (ii) Isocost (iii) Marginal Rate of Technical Substitution as it relates to inputs X and Y 6

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