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BM/APR 2009/ECO162/104

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

MICROECONOMICS

COURSE CODE

ECO162/104

EXAMINATION

APRIL 2009

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of three (3) parts : PART A (20 Questions)
PART B (4 Questions)
PART C (5 Questions)

2.

Answer ALL questions from PART A and PART B and two (2) questions from PART C.
i)
ii)

Answer PART A in the Objective Answer Sheet

Answer PART B and PART C in the Answer Booklet. Start each answer on a new
page.

3.

Do not bring any material into the examination room unless permission is given by the
invigilator.

4.

Please check to make sure that this examination pack consists of:
i)
ii)
iii)
iv)

the Question Paper

an Answer Booklet - provided by the Faculty
an Objective Answer Sheet - provided by the Faculty
A graph paper - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 11 printed pages
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BM/APR 2009/ECO162/104

PART A

1.

The fundamental problem of economics is

A.
B.
C.
D.

2.

A point inside the production possibility curve may indicate

A.
B.
C.
D.

3.

systems are concerned with the welfare of the society.

systems will ensure efficient combination of inputs at minimum costs.
systems are moderate and universal.
systems deny people of their freedom to choose.

shift to the right.

shift to the left.
remain unchanged.
cannot be determined.

If the cross price elasticity of demand between good S and T is 2, then a 2%

increase in the price of good S will result in
A.
B.
C.
D.

6.

both
both
both
both

If the price of a good increases, the demand curve for the good's close substitute will
A.
B.
C.
D.

5.

all productive resources are efficiently utilized.

inefficient allocation of productive resources.
full employment of scarce resources.
technological efficiency.

Conventional and Islamic economic systems are similar in such a way that
A.
B.
C.
D.

4.

achieving the best rate of economic growth.

stabilizing the price level in the economy.
allocating scarce resources relative to the society's unlimited material wants.
establishing an equitable taxation system.

a 1 % increase in quantity of good T demanded.

a 20% increase in quantity of good T demanded.
a 10% increase in quantity of good T demanded.
a 4% increase in quantity of good T demanded.

The supply of mutton and wool may be interrelated because both are
A.
B.
C.
D.

complementary.
supplementary.
jointly demanded.
jointly supplied.

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7.

BM/APR 2009/ECO162/104

Firm A is operating in a perfectly competitive market, its marginal revenue is

A.
B.
C.
D.

equal to zero.
equal to marginal cost at every level of output.
always less than price.
equal to average revenue and price.

ATC

Q*

Quantity

At output level Q*, the total variable cost is equal to area

A.
B.
C.
D.
9.

The following are the essential features of a pure capitalism except

A.
B.
C.
D.

10.

RQKL
QPJK
OPJQ*
RPJL

free enterprise.
price mechanism.
public ownership of resources.
profit motivated.

If your income increases by 20 percent and the quantity demanded for a good has
decreased by 5 percent, the coefficient of the income elasticity of demand for the
good is
A.
B.
C.
D.

-0.5
+0.5
-0.25
+0.25

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11.

must
must
must
must

be constant.
be increasing.
be decreasing.
be negative.

An indifference curve explains

A.
B.
C.
D.

16.

it expands production, its average total cost increases.

it has grown so large average total cost is constant as output expands.
it is operating at a scale where total fixed costs are not minimized.
it has grown so large average total cost decreases as output expands.

When a firm's total product is increasing in the short run, its marginal product
A.
B.
C.
D.

15.

Price discrimination
Price wars
Mutual interdependent
Price leadership

A firm is said to experience economies of scale in its production when

A.
B.
C.
D.

14.

elastic.
perfectly inelastic.
perfectly elastic.
inelastic.

Which of the following characteristics describe a non collusive oligopoly?

A.
B.
C.
D.

13.

BM/APR 2009/ECO162/104

A price-discriminating monopolist will not charge a higher price for a good if it

believes that the demand for the good is
A.
B.
C.
D.

12.

the
the
the
the

maximum utility that can be achieved for different number of goods.

maximum utility that can be achieved for a given budget.
combination of two goods giving equal utility to a consumer.
best number of consumption between the goods.

The average total cost of producing computers in a factory is RM250 at the current
output level of 100 units per week. If fixed costs equal RM5,000
A.
B.
C.
D.

average fixed cost equals RM50.

total cost equals RM40,000 per week.
variable cost equals RM10,000 per week.
average variable cost equals RM400.

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17.

equal to marginal revenue.

less than marginal revenue.
greater than marginal revenue.
equal to the average cost of production.

MRP = MP
MRP = W
MR = MP
AR = MR

When an indifference curve is tangent to the budget line, it means

A.
B.
C.
D.

20.

always
always
always
always

A perfectly competitive firm will hire labour to maximize profit when

A.
B.
C.
D.

19.

BM/APR 2009/ECO162/104

For a profit-maximizing monopolistic competition firm, the price of its product is

A.
B.
C.
D.

18.

consumers are satisfied with the product.

consumers have spent all their income but not maximizing total utility.
consumer have not spent all their income yet maximizing total utility.
consumer have spent all their income and maximized total utility.

Derived demand for labour depends on the

A.
B.
C.
D.

market supply of labour.

consumer demand for the final goods produced by labour.
firm's total revenue less economic profit.
cost of factors of production used in the product.

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BM/APR 2009/ECO162/104

PARTB

QUESTION 1
Ceiling price of petrol for next year capped at RM2.70
PUTRAJAYA: Consumers will not pay more than RM2.70 per liter for petrol next year
even if global prices of crude oil escalate. Domestic Trade and Consumer Affairs Minister
Datuk Sharir Samad said the Government decided on the ceiling price during last week's
Cabinet meeting.
He added that the Government had also decided to continue with the floating mechanism
to determine fuel prices. "Since the present floating system works fine, we have decided
to continue with it. Consumers will enjoy a 30 cent subsidy if the market price is RM1.90
per liter."
The pump price of petrol is now RM1.80 per liter while diesel is sold at RM1.70 per liter.
The retail prices of petrol and diesel have been gradually lowered from their highs of
RM2.70 and RM2.58 respectively in June.

Adapted from the Star, 20 December 2008

a)

Explain the meaning of ceiling price and state a reason for the government to
implement it on petrol.
(3 marks)

b)

Based on the information given in the article, illustrate diagrammatically the ceiling
price.
(3 marks)

c)

Explain two (2) disadvantages of implementing a ceiling price on petrol.

(2 marks)

d)

How would one consider the relationship between the two goods, petrol and car?
Justify your answer.
(2 marks)

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BM/APR 2009/ECO162/104

QUESTION 2
Suppose a monopolist is faced with the demand schedule shown in table 1 below.
Table 1: The demand schedule of a monopolist

Price
(RM)
40
35
30
25
20
15
10
5

Quantity
demanded
(units)
0
1
2
3
4
5
6
7

Total
revenue
(RM)

Marginal
revenue
(RM)

a)

Based on the table, complete the columns of total revenue and marginal revenue.

b)

Determine the profit maximizing price and output for this monopolist.

(2 marks)
(1 mark)
c)

At the profit maximizing output, suppose the firm's total cost is RM100, calculate its
level of profits or loss.
(1 mark)

d)

Sketch the equilibrium position showing the area of profit or loss of the above
monopoly firm.
(2 marks)

e)

Explain why a monopolist is said to be allocative inefficient?

(2 marks)

f)

State two (2) source of barriers that prevent new firms from entering this market.
(2 marks)

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BM/APR 2009/ECO162/104

QUESTION 3
a)

A firm operates in a perfectly competitive labour market produce a product which it

charges RM2.00.
Table 2: Firm's weekly production

i)

Number
of
workers
per week

Total
output per
week

0
1
2
3
4
5

0
12
21

Marginal
physical
product of
labour
(MPL)
0
12

Total
revenue
(TR)

Marginal
revenue
product of
labour
(MRPL)
0

54
10
36

Complete the blanks for each column.

(2 marks)

ii)

Assume the wage rate is RM12, how many workers would the firm hire to
maximize profits?
(1 mark)

iii)

Sketch a diagram to show the equilibrium position of this firm.

(2 marks)

b)

With the aid of diagrams, show the effects of the following on the price of palm oil.
i)

A scientific research found that soya bean oil has lower cholesterol.
(2 marks)

ii)

The world price of rubber has increased substantially for the past few months.
(2 marks)

iii)

An increase in the number of countries producing palm oil.

(1 mark)

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BM/APR 2009/ECO162/104

QUESTION 4
The figure below shows the short run profit maximizing position of a monopolistic
competitive firm.
Costs & Revenue
(RM)

33

44

55

Quantity

a)

Label the curves A, B and C.

b)

The demand curve for a monopolistic firm is relatively elastic. Why?

(1.5 mark)

(2 marks)
c)

State the profit maximizing output and price. Calculate the total revenue and total
cost at that output.
(3 marks)

d)

Calculate the amount of profit or loss made by the firm.

(1.5 marks)

e)

Sketch a diagram to show the long-run equilibrium of the firm.

(2 marks)

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BM/APR 2009/ECO162/104

PARTC

QUESTION 1
a)

Explain the concepts of scarcity, choice and opportunity cost using a production
possibilities frontier.
(10 marks)

b)

Discuss the factors that determine the price elasticity of supply of a good.
(10 marks)

QUESTION 2
a)

Differentiate between an implicit cost and explicit cost by giving examples.

(5 marks)

b)

Why is economic profit always lower than accounting profit?

(3 marks)

c)

Describe the relevant costs of producing a good borne by a producer in the short run
period.
(12 marks)

QUESTION 3
a)

The law of diminishing returns explains the short run production of a firm. Using a
relevant diagram, explain the law showing the different stages of production and the
most efficient stage a firm should produce.
(12 marks)

b)

Define diseconomies of scale. Explain any three (3) sources of diseconomies of

scale.
(8 marks)

QUESTION 4
a)

How is a monopoly firm different from a monopolistic firm?

(8 marks)

b)

Using diagrams illustrate and explain how a perfect competition firm could only make
normal profit in the long run.
(12 marks)

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BM/APR 2009/ECO162/104

QUESTION 5
Explain briefly the following concepts:
a)
b)
c)
d)

dharuriyyah and tarafiyyah

kinked demand curve
economic rent
hablumminallah and habluminannas
(20 marks)

END OF QUESTION PAPER

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