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FINALTERM EXAMINATION
FALL 2006 Marks: 60
ECO402 - MICROECONOMICS (Session - 3 ) Time: 120min

INSTRUCTIONS:

## • This exam consists of 15 Multiple Choice Questions (MCQ’s) carrying 1 mark

each,5 fill in the blanks carrying 1 mark each,5 true false carrying 1 mark each, 5
Short questions carrying 3 marks each and 2 Descriptive questions carrying 10
marks each.

• For each Multiple Choice Question, read the options available and select which
you consider is correct option.

• You are required to show all the working of short questions as well as Descriptive
question.

## • This examination is closed book, closed notes and closed neighbors.

• Do not ask any questions about the contents of this examination from anyone.

• You may wish to pace yourself with your own watch, but the Supervisor will be the
official timekeeper of the test.

• Failure to comply with the Supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant
event.

## For Teacher's use only

Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19 20
Marks
Question 21 22 23 24 25 26 27 28 29 30
Marks
Question 31 32
Marks

## Question No: 1 ( Marks: 1 ) - Please choose one

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist
will charge a ______________ price and sell a ______________ quantity.

► Higher; larger

► Lower; larger

► Higher; smaller

## Question No: 2 ( Marks: 1 ) - Please choose one

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 +
5Q. What is the marginal cost?

► 200

► 5Q

► 5

► 5 + (200/Q)
Question No: 3 ( Marks: 1 ) - Please choose one

## ► Downward shifts of MC and reductions in output.

Downward shifts of MC and increases in output.

## Question No: 6 ( Marks: 1 ) - Please choose one

As the manager of a firm you calculate the marginal revenue is \$152 and marginal cost is
\$200. You should:

► Expand output.

## Question No: 7 ( Marks: 1 ) - Please choose one

The _____ elastic a firm's demand curve, the greater its _____:

► Less; output

► More; costs

## Question No: 8 ( Marks: 1 ) - Please choose one

An electric power company uses block pricing for electricity sales. Block pricing is an
example of:

## Question No: 9 ( Marks: 1 ) - Please choose one

The maximum price that a consumer is willing to pay for each unit bought is the
______________ price:

► Market

► Reservation

► Consumer surplus

► Auction

## Question No: 10 ( Marks: 1 ) - Please choose one

When a company introduces new audio products, it often initially sets the price high and
about a year later it lowers the price. This is an example of:

► A two-part tariff.

## The market structure in which there is interdependence among firms is:

► Monopolistic competition.

► Oligopoly.

► Perfect competition.

Monopoly.

## Question No: 12 ( Marks: 1 ) - Please choose one

In the long run, the monopolistically competitive firm earns zero economic profit because:

## Question No: 14 ( Marks: 1 ) - Please choose one

Which of the following is true regarding income along a price consumption curve?

► Income is increasing.

► Income is decreasing.

► Income is constant.
► The level of income depends on the level of utility.

## A supply curve reveals:

► The quantity of output consumers are willing to purchase at each possible market
price.

► The difference between quantity demanded and quantity supplied at each price.

## ► The maximum level of output an industry can produce, regardless of price.

► The quantity of output that producers are willing to produce and sell at each
possible market price.

## Question No: 16 ( Marks: 1 ) - Please choose one

Discrimination based upon the quantity consumed is referred to as second degree price
discrimination.

► True

► False

► True

► False

## Question No: 18 ( Marks: 1 ) - Please choose one

In a perfectly competitive labor market, a firm hires labor until the marginal revenue product of
labor equal the wage rate.

► True

► False

## Question No: 19 ( Marks: 1 ) - Please choose one

According to kinked-demand-curve model, oligopolists match price cuts and price increases.
► True

► False

## Question No: 20 ( Marks: 1 ) - Please choose one

The shut down point for the firm is where price equals average cost.

► True

► False

## Question No: 21 ( Marks: 1 )

Each seller has a very small share of the market in the ______________.

## Question No: 24 ( Marks: 1 )

Many countries use ___________and ____________to keep the domestic price of a product above
world levels.

## How oligopoly is different from perfect competition, monopoly and monopolistically

competitive market?

## Question No: 28 ( Marks: 3 )

If the elasticity of demand for the product is –2, find the marginal cost of the last unit
produced.

## When do competitive markets generate an inefficient allocation of resources or market

failure? How can be the efficiency of these markets increased?

## Question No: 30 ( Marks: 3 )

How can monopoly power of a monopolist be measured? What is the basic incentive behind
monopoly power?

10 1,000
8 2,000
6 3,000
4 4,000
2 5,000
.50 6,000

## (a) Calculate total revenue.

(b) Calculate marginal revenue.
(c) What is the maximum output that the producer of this product would ever produce?
(d) Why would this firm never produce more than the output amount in part c?
(3+3+2+2)

## a. Define demand curve. Briefly explain non price determining variables of

demand. (2+4)
b. If the market price is above and below the equilibrium level how will market
adjust to reach the equilibrium point? (2+2)
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ECO402 Microeconomics
Final Term Examination – Spring 2005
Time Allowed: 150 Minutes

INSTRUCTIONS:

## All questions are compulsory.

This exam consists of 5 Multiple Choice Questions (MCQ's) and 5 descriptive
questions.
Each MCQ carries 2 Marks each and Descriptive Questions carry 10 Marks each.
You should try to complete MCQ's in 10 - 15 minutes in order to give yourself 135 -
140 minutes for descriptive questions.
For each MCQ question, read the choices available and select the choice which you
consider is the correct answer, by clicking on the appropriate check box.
Do not click the "Finish button" while solving your paper. Once you clicked the
"Finish" button, you will not be able to access your paper again. Click it at the end of
A clock is given in the exam software. Software will automatically be closed at the end
of 90 minutes.
Remember not to spend too much time on any one MCQ. Since all MCQ's carry equal
marks, it is important to manage your time and responses to test questions effectively.
Failure to comply with the Supervisor's directions will result in your test being
cancelled. Please comply with supervisor's directions to avoid any unpleasant event.

## Question No. 1 Marks : 10

Suppose that you are the manager of watch making firm operating in a
competitive market your cost of production is given by C = 100 +Q2 , where
Q is the level of output and C is total cost. The marginal cost of
production is 2Q .The fixed cost of production is \$100. If the price of
watches is \$ 60, how many watches should you produce to maximize
profit?

## The kink in the kinked demand curve arises because:

o there is a sharp, abrupt change in the price elasticity of demand
o entry into the industry is relatively easy
o monopoly profits are being made by some firms but not by
others
o the products sold by each firm are different

## o only one seller

o many sellers with similar products
o only a few sellers with either standardized or differentiated
products

## Suppose that the market demand function of a perfectly competitive

industry is given by QD = 4,750 – 50P and the market supply function is
given by QS = 1,750 +50P, and P is expressed in dollars. Find the market
equilibrium price.

## Question No. 6 Marks : 02

In the short run, the supply curve for a perfectly competitive industry:

## o shifts to the right if new firms enter the industry

o is the sum of all individual firms' average total cost curves
o is horizontal
o does not change if firms leave the industry

## Do you agree or disagree with each of the following statement. Explain

(a) Average fixed cost does not change as the output change.
(b) Firms will never sells its product for less than it costs to produce
it.

## o different prices are used to ration different goods among

different consumers
o different groups of consumers are charged different prices for
the same good
o social welfare is improved
o all consumers are charged different prices for different goods

## Question No. 9 Marks : 10

A sales tax of \$1 per unit of output is placed on one firm whose product
sells for \$5 in a competitive industry.

(a) How will this tax affect the cost curves for the firm?
(b)Will there be entry or exit?

## o is not concerned with the cost of production since higher cost

can be passed on to consumers
o tries to maximize total revenue
o usually produces in the inelastic range of the demand curve
o tries to minimize the cost of producing a given level of output
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ECO402 Microeconomics
Final Term Examination – Spring 2006
Time Allowed: 150 Minutes

 True
 False

## Question No. 2 Marks : 1

Refer to the graph below. The marginal revenue curve is represented by curve:

 A
 B
 C
 D

## Government intervention without market failure creates________________.

Question
tion No. 4 Marks : 1

## If the market supply of labor increased relative to demand (baby boomers or

female entry), a surplus of labor would exist and the wage rate would:
 Fall
 Rise
 No effect
 All of the given options

## Question No. 5 Marks : 3

State the main consequence of product differentiation? Write down the characteristics
of monopolistic competition.

## Diminishing returns to labor occur at the ______________ unit of input:

 7th
 2nd
 5th
 4th
Question No. 7 Marks : 1

Monopoly can charge any price that it wishes regardless to the market trend
or the demand for the good.
 True
 False

##  The rising portion of the MC curve,

 The rising portion of the MC curve above AVC,
 The rising portion of the MC curve above AC,
 None of the given option.
Question No. 9 Marks : 1

## Opportunity cost, most broadly defined, is:

 What we forgo, or give up, when we make a choice or a decision,
 A cost that cannot be avoided, regardless of what is done in the future,

10

## Define oligopoly. How oligopoly market equilibrium is different from perfect

competition and monopolistic competition?
How is oligopoly different from?
a) Perfect competition?
b) Monopolistic competition?
c) Monopoly?

 MP x W
 MP x MR
 MP x P
 MP x MC

## Question No. 13 Marks :

3

Define price discrimination. Why 1st degree price discrimination is practically difficult?

## Which of the following characteristics is common to both perfect competition

and monopolistic competition?
 Average total cost is minimized in the long run.
 Marginal revenue equals price.
 Economic profits are zero in the long run.
 Price equals marginal cost.

## Question No. 15 Marks : 1

The price of a good is \$100, and the marginal cost of the good is \$90. A
competitive firm should produce that unit.
 True
 False

## Question No. 17 Marks : 1

One characteristic often seen in real world oligopolies is:
 Fluctuating prices.
 Zero economic profit.
 Low barriers to entry.
 Price rigidity.

## Question No. 19 Marks : 1

Different combinations of labor and capital that have the same total costs can
be shown by a(n):
 Isoquant line
 Isocost line
 Production function.
 Total cost curve.

## Question No. 20 Marks : 1

In an oligopoly, there are only a few firms and a firm can control price,
regardless of the actions of other firms in the industry.
 True
 False

## Question No. 21 Marks : 1

If factor prices rise as industry output expands in the long run, we have:
 A constant-cost industry,
 A decreasing-cost industry,
 An increasing cost industry,
 Any of the given option

## Question No. 22 Marks : 1

The difference between what consumer is willing to pay for an item and what he actually
pays is called ______________.

## Demand for a product is elastic when:

 A fall in the price of the product causes total expenditures by consumers on the product to
fall
 The percentage change in quantity demanded equals the percentage change in price.
 Total expenditures by consumers for the product increase when the product's price falls.
 A fall in the price of the product does not affect the firm's revenue.

10

## # of Total Product Marginal Average

Workers Product Product
per day
0 0
1 4
2 10
3 18
4 22
5 24
6 22

## b) At what point (number of workers) does the firm experience diminishing

returns? Explain.

## The total variable costs of producing no output are:

 0
 100
 400
 Incalculable from the information given in this question.
Question No. 26 Marks :
3

## Who lose from import quotas?

 Consumers of imported goods.
 Consumers of exported goods.
 Producers of imported goods.
 Firms that hold import licenses.

## OPEC is best example of cartel:

 True
 false
Question No. 29 Marks : 1

## ______________________measures the percentage change in quantity demanded

resulting from a one percent change in income.

## A monopsony is a situation where there is a (n):

 Single seller.
 Oligopoly.
 Competitor with a monopolist.

## Question No. 32 Marks : 1

The general shape of the marginal cost curve is that it ______________ and
then ________________:

 is horizontal, declines
 is horizontal, rises
 rises, declines
 declines, rises
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MIDTERM EXAMINATION
FALL 2006 Marks: 40
ECO402 - MICROECONOMICS (Session - 3 ) Time: 60min

## • This exam consists of 10 Multiple Choice Questions (MCQ’s) carrying 1 mark

each,5 fill in the blanks carrying 1 mark each, 5 Short questions carrying 3 marks
each and 1 Descriptive questions carrying 10 marks.

• You are required to show all the working of short questions as well as Descriptive
question.

## • Use of calculator is allowed in the examination.

• Do not ask any questions about the contents of this examination from anyone.

• You may wish to pace yourself with your own watch, but the Supervisor will be the
official timekeeper of the test.

• Failure to comply with the Supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant
event.
For Teacher's use only
Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19 20
Marks
Question 21
Marks

## Question No: 1 ( Marks: 1 ) - Please choose one

Alvin's preferences for good X and good Y are shown in the diagram below.

## An increase in income, holding prices constant, can be represented as:

► A change in the slope of the budget line.

## ► A parallel outward shift in the budget line.

► An outward shift in the budget line with its slope becoming flatter.

## ► A period where the law of diminishing returns does not hold.

► At least one fixed factor of production, and firms neither leaving nor
entering the industry.

► Labor.

► Plant size.

## ► All of the given options.

Question No: 5 ( Marks: 1 ) - Please choose one

An isoquant:

► Must be linear.

## ► Cannot have a negative slope.

► Is a curve that shows all the combinations of inputs that yield the
same total output.

## ► Is a curve that shows the maximum total output as a function of

the level of labor input.

## ► Are both luxury goods.

► Are complements.

► Are both more inelastic in demand in the long run than in the
short run?

## Question No: 7 ( Marks: 1 ) - Please choose one

Although there are many reasons why a market can be non-competitive, the
principal economic difference between a competitive and a non-competitive market
is:

## ► The number of firms in the market.

► The extent to which any firm can influence the price of the product.
► The size of the firms in the market.

## The theory of consumer behavior is based on certain assumptions. It includes at

least the assumption(s) that preferences are:

► Complete.

► Transitive.

► Intransitive.

## Question No: 10 ( Marks: 1 ) - Please choose one

What does it mean when the consumer price index CPI is higher this year than
last?
► The rate of inflation has increased.

## Question No: 11 ( Marks: 1 )

Two goods are considered ______________if an increase (decrease) in the price of one
leads to an increase (decrease) in the quantity demanded of the other.

## Question No: 15 ( Marks: 1 )

The marginal rate of technical substitution (MRTS) is ___________at all points on the
isoquant.

## Define isocost line. What is the slope of isocost line?

Question No: 18 ( Marks: 3 )

## Question No: 19 ( Marks: 3 )

If there is 10% chance of a \$10,000 loss from a home burglary, what will be the
expected loss?

## Question No: 21 ( Marks: 10 )

a. Differentiate b/w elasticity of demand and supply with the help of formula.

## b. Calculate income elasticity of demand with the help of example.

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ECO402 Microeconomics
Mid Term Examination – Spring 2006
Time Allowed: 90 Minutes
INSTRUCTIONS:

## • This exam consists of 10 Multiple Choice Questions (MCQ’s) carrying 1

mark each,5 fill in the blanks carrying 1 mark each, 5 Short questions
carrying 3 marks each and 1 Descriptive questions carrying 10 marks.

• You are required to show all the working of short questions as well as
Descriptive question.

## • This examination is closed book, closed notes, closed neighbors.

• Do not ask any questions about the contents of this examination from
anyone.

• You may wish to pace yourself with your own watch, but the Supervisor will
be the official timekeeper of the test.

Failure to comply with the Supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant
event.

## Which best expresses the law of demand?

 A higher price reduces demand
 A lower price reduces demand
 A higher price reduces quantity demanded
 A lower price shifts the demand curve to the right

## If a consumer starts in equilibrium in their consumption of apples and chocolate bars,

and the price of apples rises, what will happen to the quantity demanded of apples, and
why?

## Question No. 3 Marks : 1

_____________is the additional utility gained from consuming one extra unit of a good or
service.

## A firm will earn an economic profit if:

 Its total sales revenue equals the cost of labor and raw materials
 It produces its output utilizing the least-cost production method
 It is regulated by government
 Its total sales revenue exceeds the sum of all its economic costs

## a). Define equilibrium.

b). If
– QS = 1,800 + 240P
– QD = 3,550 - 266P
Find out the equilibrium quantity and price. Also find out the elasticity of
demand and supply and show that elasticities are elastic or inelastic?
Question No. 6 Marks : 1

##  Either down sloping demand or up sloping supply but not both

 The exchange of goods and services, but not resources
 Exchange between buyers and sellers
 Face-to-face contact between buyers and sellers

##  They move in opposite directions

 They move in the same direction
 One decreases when the other increases
 One increases when the other decreases

 Satisfaction
 Use
 Pleasure
 Utility

## Question No. 11 Marks : 3

Does the Laspeyres index always overstate the true cost of living index?

## Question No. 14 Marks : 1

If the supply of a product decreases and the demand for that product simultaneously
increases, then equilibrium:

##  Price must rise

 Price must fall
 Quantity must rise
 Quantity must fall

## Question No. 16 Marks : 1

Suppose that a 2% increase in income in the economy decreases the quantity demandedof
gadgets by 1% at every possible price. This implies that:

##  The supply of gadgets is elastic

 Income elasticity is positive and gadgets are a normal good
 Income elasticity is negative and gadgets are a normal good
 Income elasticity is negative and gadgets are an inferior good

## Question No. 17 Marks : 1

Moving from left to right, the typical production possibilities curve has:

##  an increasingly steep negative slope

 a decreasingly steep negative slope
 an increasingly steep positive slope
 a constant and negative slope

to_____________.

Microeconomics:

##  Is particularly subject to the "fallacy of composition"

 Is concerned with the economy as a whole
 Studies how supply and demand determine prices in individual markets
 Describes the aggregate flows of output and income

## Question No. 20 Marks : 1

When movie ticket prices increase, families tend to spend more time at home watching

##  Diminishing marginal utility

 The income effect
 The rationing function of markets
 The substitution effect

## Question No. 21 Marks : 3

Define supply curve. What is the relationship between price and quantity supplied?
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MIDTERM EXAMINATION
SPRING 2007 Marks: 40
ECO402 - MICROECONOMICS (Session - 6 ) Time: 90min

## Exam Date: Saturday, May 12, 2007

 All questions are compulsory.
 This exam consists of 10 Multiple Choice Questions (MCQs) of 1 mark each, 5 fill in
the blanks of 1 mark each, 3 Short questions of 5 marks each and one Descriptive
question of 10 marks.
 For each Multiple Choice Question, read the options available and select which you
consider are the correct one.
 You are required to show all the working of short as well as practical question.
 Use of calculator is allowed.
 This examination is closed book, closed notes and closed neighbors.

 Do not ask question about the contents of this examination from anyone.

 You may wish to pace yourself with your own watch, but the Supervisor will be the
official timekeeper of the test.

 Failure to comply with the Supervisor’s directions will result in your test being
cancelled. Please comply with supervisor’s directions to avoid any unpleasant event

## For Teacher's use only

Question 1 2 3 4 5 6 7 8 9 10 Total
Marks
Question 11 12 13 14 15 16 17 18 19
Marks
Question
Marks

## Question No: 1 ( Marks: 1 ) - Please choose one

What does it mean when the consumer price index (CPI) is higher this year than
last?

## Which of the following is NOT an assumption regarding people's preferences in the

theory of consumer behavior?

## ► The assumption of transitivity is violated.

► The assumption of completeness is violated.

## Question No: 4 ( Marks: 1 ) - Please choose one

Which of the following is true concerning the income effect of a decrease in price?

## Assume that two investment opportunities have identical expected values of

\$100,000. Investment A has a variance of 25,000, while investment B's variance is
10,000. We would expect most investors (who dislike risk) to prefer investment
opportunity

## Question No: 6 ( Marks: 1 ) - Please choose one

When the average product is decreasing, marginal product

► Is increasing.

► Is decreasing.

## Question No: 8 ( Marks: 1 ) - Please choose one

The rate at which one input can be reduced per additional unit of the other input,
while holding output constant, is measured by the

## ► Average product of the input.

Question No: 9 ( Marks: 1 ) - Please choose one

## Fixed costs are fixed with respect to changes in

► Output.

► Capital expenditure.

► Wages.

► Time.

## The diagram below contains _____ cost curves.

► short run

► Intermediate run

► long run

Both short run and long run.

an economy.

## A ____________indicates all combinations of two commodities for which total money

spent equals total income.

## Question No: 14 ( Marks: 1 )

The market demand will shift to the_______ as more consumers enter the market.

## Actual expenses plus depreciation charges for capital equipment is known

as______________.

## Question No: 16 ( Marks: 5 )

Define utility. Differentiate between ordinal and cardinal utility function; which one
is better? (1+3+1)

## (a) Differentiate between risk averse and risk loving people.

(b) How consumer can attempt to reduce risk? (3+2)

## Question No: 18 ( Marks: 5 )

a. Define elasticity of demand. What are the two extreme case of elasticity of
demand?
b. Define cross elasticity of demand; also write down its formula. What will be
the cross elasticity of demand for substitutes and for complements. (2+3)
Question No: 19 ( Marks: 10 )

## Define a market basket.Onwhich assumptions consumers preferences are based?

Why an indifference curve is convex to origin.(2+6+2)