Professional Documents
Culture Documents
Supplementary Examination
January 2011
TIME: 3 hours
TOTAL MARKS: 180
Please make sure you record your student number in pencil on your MCQ sheet.
Negative marking applies. Each question counts 3 marks. 1 mark will be deducted for
each wrong answer.
Selecting more than one answer for the same question incurs a 1 mark penalty.
If you leave a question blank, you will not be penalised.
Only use pencil to fill in your MCQ sheet, and erase all unwanted marks thoroughly.
Rice to potatoes
Mealie pap to rice
Potatoes to mealie pap
All of the above
2. A consumers willingness to trade one good for another can be expressed by his
a)
b)
c)
d)
indifference curve
marginal rate of substitution
Both (a) and (b)
Neither (a) nor (b)
dont cross
are downward sloping
are concave to the origin
become flatter as we increase the quantity of the good on the x-axis
6. If Xolanis marginal utility of steak equals 10 and his marginal utility of salad equals 2,
then
a)
b)
c)
d)
7. If a utility function between food (F) and clothing (C) is U = F C the marginal utility of
food equals
a)
F
C
b)
C
F
c) 0.5
C
F
d) 0.5
F
C
8. Clifford lives by the motto Eat and drink and be merry today for tomorrow does not
matter. If todays consumption is represented by x and tomorrows consumption is
represented by y, then which utility function best represents Cliffords preferences?
a)
b)
c)
d)
U=xy
U = x/y
U=x
U=y
9. Joes income is R500. The price of food is R2 per unit and the price of accommodation is
R100 per unit. Which of the following bundles is in Joes opportunity set?
a) The combination of 100 units of food and one unit of accommodation is in Joes
opportunity set
b) The combination of 50 units of food and five units of accommodation is in Joes
opportunity set
c) The combination of 200 units of food and two units of accommodation is in Joes
opportunity set
d) The combination of 150 units of food and three units of accommodation is in Joes
opportunity set
10. If the price of one good decreases while the price of the other good remains unchanged,
and the consumers income remains unchanged, what happens to the budget line?
a) The budget line rotates outwards from the intercept on the axis of the good that did not
change in price
b) The budget line swivels inwards from the intercept on the axis of the good that did not
change in price
c) The budget line shifts inwards without a change in slope
d) The budget line shifts outwards without a change in slope
11. Suppose the quantity of x is measured on the horizontal axis. If the price consumption
curve is vertical when the price of x changes then the demand for x is
a)
b)
c)
d)
of unitary elasticity
of constant elasticity
perfectly price inelastic
perfectly price elastic
For question 12 to 14 consider the following diagram. Note: The diagram is NOT draw to
scale
Chip rolls
10
20
Burgers
12. If Thembeka has R100 per month to spend on meals on campus, what is the price of
burgers?
a)
b)
c)
d)
R20
R10
R5
None of the above
13. If Thembeka has R100 per month to spend on meals on campus, what is the maximum
number of chip rolls that she can consume?
a)
b)
c)
d)
12.5
8
20
Cannot be calculated from the information given
14. What happens if Thembekas mother gives her three burgers per month?
a)
b)
c)
d)
The budget constraint shifts out, with a kink representing the amount of the gift
The budget constraint swivels out, with a kink representing the amount of the gift
The budget constraint is unaffected
The budget constraint has a flatter slope than before
Pork
15. The diagram above shows Larrys preferences for ham and pork. Which of the following
statements is TRUE?
a)
b)
c)
d)
18. When measuring the substitution effect one uses the change along
a)
b)
c)
d)
19. Jerry spends his entire income on cereal and tea. Every month he spends half of his income
on each of these goods. Jerrys income elasticity for cereal is 0.75. What is his income
elasticity for tea?
a)
b)
c)
d)
1.25
0.75
1
Unknown with information provided
20. The median household income is R50 000 per year. The typical household spends R125
per year on soap which has an income elasticity of 0.07. From this information you can
conclude that
a)
b)
c)
d)
soap is a luxury
soap is a Giffen good
the income effect from a change in the price of soap is large
the income effect from a change in the price of soap is small
P = 2400 150Q
TC = cQ
(C)
(D)
21. If Eye maximised its profit, what will be its corresponding total output?
a)
b)
c)
d)
Q = (2400-c)/450
Q = (2400)/300
Q = (2400)/450
Q = (2400-c)/300
22. Using Equations C and D, and assuming that c=300, what would Eyes corresponding
price (PM) and profit be in equilibrium?
a)
b)
c)
d)
23. Consider the graphs below. Which graph is the most correct representation of Eyes
Marginal Revenue, Demand and Marginal Cost curves?
Graph a)
Graph b)
Graph c)
Demand:
Costs:
Graph d)
(C)
(D)
24. Now, imagine that equations C and D apply to a perfectly competitive market rather
than a monopolistic market by letting Eye be joined by n-1 other firms. Continue to
assume that c=300. As one of the firms in the perfectly competitive market, what will
Eyes output be now?
a)
b)
c)
d)
qeye=16/n
qeye=14/n
qeye=16
qeye=14
25. We know that we can measure the different levels of efficiency of Monopoly against
Perfect Competition using a measure of lost consumer surplus and lost producer
surplus. Having worked out total market output for the perfectly competitive market
and total market output for the monopolistic market, what is the value of the
deadweight loss when Eye holds a monopoly?
a)
b)
c)
d)
DWL = 7350
DWL = 4200
DWL = 3675
There is no deadweight loss because MC is constant
Now consider that D and C represent the general Demand and Cost functions
for firms operating in a duopoly. Eye is joined by a second firm, Jay. They
choose their outputs simultaneously and have the following profit functions.
eye = (2400 150(qeye+ qjay)) qeye - 300qeye
(F)
jay = (2400 150(qeye+ qjay)) qjay - 300qjay
(G)
26. Using functions F and G, find the reaction functions for Eye and Jay when they
maximise profit. Which of the following is the correct combination of reaction
functions?
a)
b)
c)
d)
Rjay(qeye) = (2100-150jay)/300
Rjay(qeye) = (2100-150jay)/450
Rjay(qeye) = (2100-150eye)/450
Rjay(qeye) = (2100-150eye)/300
27. In general, considering your work so far and considering what would happen if firms
chose their outputs sequentially to form a Stackelberg monopoly, or their prices
simultaneously to form a Bertrand duopoly, how would you rank the total industry
outputs from these different market structures?
a) QBertrand < QStackelberg < QCournot < QMonopoly
b) QCournot > QStackelberg > QBertrand > QMonopoly
c) QBertrand > QStackelberg > QCournot > QMonopoly
d) QStackelberg > QBertrand > QCournot > QMonopoly
28. Which of the following examples would not qualify or would qualify least as a
system in which increasing returns and lock-in might operate?
a) Improvements in Apple Macintosh computing technology
b) Apple Farming
c) Hi-tech Cider production
d) Instruction in Unix-Based (rather than Microsoft-based) computer operating
systems
29. In his article The Limits of Markets, which of the following points does Robert
Kuttner not emphasise in his argument?
a) Claims about markets suggest that privatizing and marketizing reconcile our civil
and social selves
b) Claims about markets misdescribe the dynamics of human motivation
c) Claims about markets ignore the fact that civil society needs realms of political
rights where some things are not for sale
d) Claims about markets ignore that markets price many things wrongly, implying that
perfectly competitive markets may not yield optimal economic outcomes
30. Examine the following myths.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
Which of the above myths were specifically articulated by Arthur in his article Myths
and Realities of the High-Tech Economy?
a)
b)
c)
d)
Question A2
A firm has access to two production processes with the following marginal cost functions:
MC1 = 0.4q and MC2 = 2+ 0.2q.
If the firm wants to produce 8 units of output, how much should it produce with each process?
[10]
Question A3
Nobubele runs a firm that produces T-shirts. Her short-run cost function is given by
TC(q) = q2 + 25q +144.
If the market price is R35 per T-shirt, how many T-shirts will Nobubele produce? How much
profit/loss will she be making at this price? Will she shut down in the short run at this price?
[10]
Explain your answer.
Question A4
Suppose market demand in a perfectly competitive industry is Q = 1000 - 4p. If all firms have
2
LRAC = 50 - 5q + q , how many identical firms will there be when this industry is in long-run
equilibrium?
[12]
10
Question A5
A drought in Lesotho has sharply increased the price of water and, consequently, increased the cost of
growing tomatoes. Suppose one grower in the perfectly competitive tomato industry develops a hybrid
tomato that requires 1/2 as much water as the general variety. Assume that the drought is expected to
continue for two more years. What are the expected short-run and long-run effects of the hybrid tomato
on the profits of the grower who developed the hybrid? What are the short- and long-run effects on the
profits for the entire industry?
[8]
11
Ster-Kinekor
Nu-Metro
Independent
Cinemas
Totals
Market Shares
73%
25%
2%
Number of Screens
58%
35%
7%
100%
100%
12