Professional Documents
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ECF3900
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EXAM DURATION:
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AUTHORISED MATERIALS
CALCULATORS
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SPECIFICALLY PERMITTED ITEMS
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Candidates must complete this section if required to write answers within this paper
STUDENT ID:
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DESK NUMBER:
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INSTRUCTIONS TO STUDENTS
Under a kinked demand model in oligopoly, demand curve is more or less elastic above
and below the equilibrium price? Explain this fully with the help of a diagram. In your diagram, show
the equilibrium price and output level. Explain why price is sticky in this scenario.
(10 marks=2+4+1+3)
2.
Draw a diagram for a perfectly competitive industry with firms earning normal profits.
All firms in the industry use oil as a key input. Using your diagram, illustrate a reduction in the price of
oil. Will firm-level profits increase or decrease and will market supply increase or decrease?
(10 marks=2+3+2+3)
3.
Do economies of scale offer a competitive advantage? Explain your argument with the
aid of an example and diagram(s).
(10 marks=3+3+4)
4.
List two products that you think are price elastic. List two products that you think are
price inelastic. Is consumer surplus greater under elastic or inelastic demand? Explain all your answers
in detail.
(10 marks=2+2+6)
5.
Explain in detail how each of the following policy suggestions are appropriate for
improving economic growth in an economy?
a.
b.
c.
d.
e.
6.
a. What is the difference between a pooling and a separating equilibrium? Give examples.
b. If there is a surplus amount of rental office in a city, what do you expect to happen to rents? Use a
diagram to explain your answer.
(10 marks=5+5)
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7.
What are economies of scope and how might they lead a firm to diversify? Give an
example of a company/business with various products enjoying economies of scope in answering your
question.
(10 marks=5+5)
8.
a.
b.
In the short run, why do average total costs initially fall and then increase?
Explain why average fixed costs are always declining. What commercial strategies can
be supported by falling average fixed costs?
(10 marks=5+5)
****END OF PAPER****
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