Professional Documents
Culture Documents
Examination
May 2010
TIME: 3 hours
TOTAL MARKS: 180
p1/ p2
p2/ p1
m/p2
upward sloping for a Giffen good
C
D
B
Good 1
2. If the compensated budget line is tangent to the lower indifference curve at B, the diagram
above illustrates a
a)
b)
c)
d)
4. In the diagram above, if the price of Good 1 rises, the compensated budget line should be
tangent to the indifference curve at
a)
b)
c)
d)
A
B
C
D
an inferior good
a normal good
a Giffen good
indeterminate (due to too little information)
6. For Good 1 to be a Giffen good in the case of a price increase, the final tangency must be
a)
b)
c)
d)
Between C and D
Left of C
Right of D
At D
x22
x1 x2
x1-1 x22
8. The Lagrange method sets the first order conditions of the Lagrange function equal to zero
because
a)
b)
c)
d)
MU 1
MU 2
MU 1
MU 2
MU 1
c)
p1
b)
d) x 2
p2
p1
MU 2
p2
p1
x1
p2
13. Suppose the production of DVD players can be represented by the following production
function: q = L0.4 K0.4. Which of the following statements is (are) TRUE?
(i)
(ii)
(iii)
3
4
6
It cannot be determined from the information given
15. If a firm buys a building so as to have office space for its workers, the monthly
opportunity cost of the building is best measured as
(a) the monthly bond (mortgage) payment the firm must pay
(b) the price the firm paid divided by twelve
(c) zero
(d) the rent the firm could earn if it rented the building to another firm
16. Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The
average cost of the 5th T-shirt is
(a) R2
(b) R12
(c) R52
(d) R60
17. Suppose the short-run production function is q = 10L. If the wage rate is R10 per unit of
labour, then AVC equals
(a) q
(b) q/10
(c) 10/q
(d) 1
18. If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage
rate for labour is R5, what is the rental rate for capital?
(a) R0.50
(b) R1
(c) R2
(d) R10
19. Consider the following properties
i. Economies of Scale
ii. Inclusive Control
iii. Exclusive Contracting
iv.
Registration/Licensure
v. Patents
vi.
Government Ownership
Which of the above are not sources of private monopoly power?
a)
b)
c)
d)
20. Consider the following characteristics discussed by Paul David in his article, Clio and the
Economics of Qwerty.
i. System scale economies.
ii. Quasi-irreversibility of investment.
iii. Technological interunrelatedness.
iv.
Ex ante predictability.
v. System compatibility.
Which of the above do not characterize positive feedback or lock-in systems as detailed by
David?
a)
b)
c)
d)
For the next few questions consider the market for fashion magazines.
Lets assume that the fashion magazine industry is dominated by one firm,
Elle (l). Elle faces the following demand and cost structures.
Inverse Demand:
(D)
Firm Cost:
(C)
Remember that because there is a monopoly, market output
, the
monopolists output.
21. Facing demand and cost structures D and C, at what level would the monopolist, Elle, set
its output when it maximises profit?
a)
b)
c)
d)
22. Assume now that c=400 and that ql = 150. What would Elles profit be at the optimal
quantity?
a) 90 000
b) 150 000
c) 0
d) It cannot be calculated with the information provided.
23. Continue to assume that c=400 and that ql = 150. What is the value of the deadweight loss
(DWL) of monopoly when Elle charges its monopoly price?
a) DWL = 180 000
b) DWL = 90 000
c) DWL = 45 000
d) DWL = 0 because marginal costs are constant
24. Continue to assume that c=400 and that ql = 150. Elle realises that it has the ability to price
discriminate perfectly in its market by charging each reader the price they are willing to
pay for its magazines. Assuming that Elle is able to execute its price discrimination
perfectly, what is the total value of Consumer Surplus that Elle absorbs from its
consumers relative to if Elle operated in a perfectly competitive market?
a) CS = 360 000
b) CS = 180 000
c) CS = 90 000
d) Elle does not absorb any consumer surplus.
25. Which of the following must be true for Elle to be able to price discriminate?
a) There are no other firms in the market.
b) The good is non-durable.
c) The good cannot be easily resold.
d) All of the above must be true.
Now assume that the incumbent firm, Elle (l), is joined by another firm, Kay (k) and that
they form a two firm oligopoly a duopoly. Inverse demand is that same as previously,
defined by (D). Assume also that Kay faces the same cost structures as Elle, that
is
. Remember that total market output
.
26. Assume that Kay and Elle choose their outputs simultaneously. What would their
respective reaction functions be?
a)
b)
c)
d)
,
,
,
27. Now assume that Kay and Elle act sequentially and maximize profit with respect to
output. Assume that Elle, as the incumbent, is the market leader. Assume, also, that you
are given the value of costs, which are the same for both firms, c = 400. What would
Elles output be?
a) ql = 300
b) ql = 600
c) ql = 75
d) ql = 150
28. What condition ensures that Kay and Elle operate in an oligopoly and not in some form of
monopolistic competition?
a) Oligopoly includes barriers to entry.
b) Oligopoly includes product differentiation.
c) Oligopoly includes no barriers to entry.
d) Oligopoly includes firms facing downward-sloping demand curves.
29. Assume that Kay and Elle wanted to form a cartel in the fashion magazine industry and
that they cannot monitor each other. What will happen?
a) Kay and Elle will act as price setters.
b) Kay and Elles cartel will fail.
c) Kay and Elles cartel will prosper.
d) Kay and Elles actions will ensure the market becomes a monopoly.
30. Consider that Kay and Elle, instead of setting quantities simultaneously set their prices
simultaneously. Assume that they continue to operate in an oligopoly, and they continue
to face Demand (D) and Costs (C). What would the total industry output be?
a)
b)
c)
d)
2.(b) All firms in a perfectly competitive industry have the following identical long-run cost
curve: C(q) = q3-10q2+36q. where q is the output of the firm. The industry has a market
demand of Q = 111-p.
Determine the long run number of firms in this industry.
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