Practice Exam ECF1100
Part A (21 Marks)
Answer all of the following multiple-choice questions in your answer book (not on this paper). Each question is worth 1 mark. Clearly number all the questions and write your answers in CAPITAL LETTERS.
For example your answers to this section should look like:
And so on....
Note that your answers should consist ONLY of the questions number and the letter of the answer you believe to be correct. NO explanations of answers will be taken into account in marking.
1) If a monopolist's price is $65 a unit and its marginal cost is $25 for the last unit produced, then: A) to maximise profit the firm should decrease output.
B) to maximise profit the firm should continue to produce the…show more content… B) $900.
12) Suppose a firm has $1500 in variable costs and $500 in fixed costs when it produces 500 units of output and sells them for $50 per unit. If the price of the product drops to $4 each, should this firm continue operation in the short run?
A) Yes, because P > ATC.
B) No, because P < AVC.
C) No, because P < AR.
D) Yes, because P > AVC.
13) For a competitive firm, let its total costs be TC = 48 + 2Q2, marginal costs MC = 4Q, average variable costs AVC = 2Q and average total costs ATC = 48/Q + 2Q. If market price is P = 24, which statement is true?
A) In the short run equilibrium Q = 6, MC = 24, AVC = 12 and ATC = 20.
B) In the short run equilibrium Q = 2, MC = 12, AVC = 6 and ATC = 22.
C) In the short run equilibrium Q = 4, MC = 24, AVC = 10 and ATC = 18.
D) In short run equilibrium Q = 6 and MC = P = AVC = 24.
14) Is a monopolistically competitive firm productively efficient?
A) It is not efficient, because it does not produce at minimum average total cost.
B) It is efficient, because price equals average total costs.
C) It is not efficient, because price is greater than marginal product.
D) It is efficient, because it produces where marginal cost equals marginal revenue.
15) On weekends, the local bakery sells baguettes for half the weekday price. This usually
leads to double the amount of purchases of baguette bread as