# A horisontal demand curve is . [1] completely inelastic. [2] infinitely elastic. [3] highly (but not Infinitely) elastic. [4] highly (but not…

1.A horisontal demand curve is …

[1] completely inelastic.

[2] infinitely elastic.

[3] highly (but not Infinitely) elastic.

[4] highly (but not completely) inelastic.

2.What happens if price is initially above the market-clearing price?

[1] Demand shifts out.

[2] Supply shifts in.

[3] Surplus occurs and quantity demanded will increase, quantity supplied will decrease and price falls.

[4] Surplus occurs and quantity demanded will increase, quantity supplied will decreases and price rises.

3.QA firm that has a kinked demand curve assumes that, if it raises its price, of its competitors will raise their prices and that, if it lowers its price, of its competitors will lower their prices.

[1] all; all

[2] none; all

[3] all; none

[4] none; none

4. Alvin’s preferences for good X and good Y are shown in Figure 1.1.

Refer to Figure 1.1. At any consumption bundle with the quantity of good X exceeding the quantity of good Y (that is, a bundle located below the 45 degree line, like point A), Alvin’s marginal rate of substitution of good X for good Y is …

[1] diminishing.

[2] zero.

[3] constant and positive.

[4] positive.

5.Which of the following will result in an increase in a consumer’s purchasing power?

[1] An increase in the consumer’s income.

[2] An decrease in the price of the good on the vertical axis.

[3] An decrease in the price of the good on the horizontal axis.

[4] All of the above.

6.Bob views apples and oranges as perfect substitutes in his consumption, and marginal rate of substitution (MRS) = 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is R3 each, the price of oranges is R5 each, and Bob’s budget is R50 per week. What is Bob’s utility maximising choice between these two goods?

[1] 6 apples and 6 oranges.

[2] 5 apples and 10 oranges.

[3] 10 oranges and 4 apples.

[4] 12 apples and 3 oranges.

[5] None of the above.

7.When a firm charges each customer the maximum price that the customer is willing to pay, the firm …

[1] engages in a discrete pricing strategy.

[2] charges the average reservation price.

[3] engages in second-degree price discrimination. [4] engages in first-degree price discrimination.

[5] engages in price war.

8. Which of the following is true concerning the substitution effect of an increase in price?

[1] It always will lead to a decrease in consumption

[2] It will lead to a decrease in consumption only for a normal good.

[3] It will lead to a decrease in consumption only for an inferior good.

[4] It will lead to a decrease in consumption only for a Giffen good.

9.Suppose Nomasa, Noleen and Nothando all purchase small white board markers for their rooms for R1500 each. Nomsa’s willingness to pay was R3500, Noleen’s willingness to pay was R2500, and Nothando’s willingness to pay was R3000. Total consumer surplus for these three would be …

[1] R1500.

[2] R3000.

[3] R4500.

[4] R9000.

[5] R6000

10.Which of the following is a key assumption of a perfectly competitive market? [1] Firms can influence market price.

[2] Commodities have few sellers.

[3] It is difficult for new sellers to enter the market.

[4] Each seller has a very small share of the market.

[5] None of the above.

11. Joe owns a small coffee shop and his production function is q = 4KL, where q is total output in cups per hour, K is the number of coffee machines (capital) and L is the number of employees hired per hour (labour). If Joe’s capital is currently fixed at K=4 machines, what is his short-run production function?

[1] q = 16L

[2] q = 4L

[3] q = 16KL

[4] q = 4K4

[5] q= 16K4

12. If current output is less than the profit maximising output, then the next unit produced …

[1] will decrease profits.

[2] will increase costs more than it increases revenue.

[3] will increase revenue more than it increases costs.

[4] will increase revenue without increasing costs.

[5] may or may not change profits.

13. Refer to Figure 1.3. The situation pictured is one of …

[1] constant returns to scale, because the line through the origin is linear.

[2] decreasing returns to scale, because doubling inputs results in less than double the amount of output.

[3] decreasing returns to scale, because the isoquants are convex.

[4] increasing returns to scale, because the isoquants are convex.

[5] increasing returns to scale, because doubling inputs results in more than double the amount of output.

14. Although rice is a staple of the Japanese diet, the Japanese government has long restricted the importation of rice into Japan. The result of this import quota is to…

[1] decrease the price of rice to the Japanese people.

[2] decrease consumer surplus of Japanese rice consumers.

[3] decrease producer surplus of Japanese rice producers.

[4] Secure a welfare gain for the Japanese people.

[5] Increase the consumption of rice by the Japanese people.

15. The difference between the economic and accounting costs of a firm are …

[1] the accountant’s fees.

[2] the corporate taxes on profits.

[3] the opportunity costs of the factors of production that the firm owns.

[4] the sunk costs incurred by the firm.

[5] the explicit costs of the firm.

16. At the optimum combination of two inputs …

[1] the slopes of the isoquant and isocosts curves are equal.

[2] costs are minimised for the production of a given output.

[3] the marginal rate of technical substitution equals the ratio of input prices.

[4] all of the above.

[5] [1] and [3] only.

17.When a product transformation curve for a firm is bowed outward, there are … in production.

[1] economies of scope

[2] economies of scale.

[3] diseconomies of scope.

[4] diseconomies of scale.

18.As a manger of the firm, you calculate that the marginal revenue is R200 and the marginal cost is R1500. You should …

[1] decrease output.

[2] do nothing since you don’t have information about average fixed costs.

[3] reduce output to where marginal revenue is equal to marginal costs.

[4] increase output to where marginal revenue is equal to marginal costs.

[5] maintain the current output unchanged.

19. The long run average cost curve (LAC) …

[1] is the envelope of the short run average costs curves (SAC) at their minimum points.

[2] is the envelope of the short run average costs curves (SAC) not necessarily at their minimum points.

[3] lies above any of the short run average costs curves.

[4] intercepts the average costs curves where they are lower than their marginal cost curves.

[5] lies on the minimum points of both the smaller and the larger plant and indicates maximum efficiency.

20. Government intervention can increase total welfare when …

[1] there are costs or benefits that are external to the market.

[2] consumers do not have perfect information about product quality.

[3] a high price makes the product unaffordable for most consumers.

[4] all of the above.

[5] [1] and [2] only.

21. If a regulatory agency sets a price where AR = AC for a natural monopoly, output will be …

[1] equal to the competitive level.

[2] equal to the monopoly profit maximising level.

[3] greater than the monopoly profit maximising level and less than the competitive level.

[4] greater than the competitive level.

[5] all of the above.

22. Senzo decides that he would pay as much as R7 000 for a new iPad. He buys the iPad and realises consumer surplus of R1200. How much did Senzo pay for his iPad?

[1] R5 800

[2] R1 200

[3] R7 000

[4] R5 700 [

5] R8 200

23.Which always increase(s) as output increases?

[1] Marginal cost only.

[2] Fixed cost only.

[3] Total Cost only.

[4] Variable Cost only.

[5] Total cost and Variable cost.

24.When production increases over the short run …

[1] Average Fixed cost will remain the same.

[2] Average Variable cost will increase faster than Average Total cost.

[3] Average Variable Cost will eventually increase faster than Marginal cost.

[4] Marginal Cost will intercept Total Variable cost in its minimum point.

[5] [2] and [4] are correct.

25.Mr Jones was selling his house. The asking price was R420 000 and Jones decided he would take no less than R380 000. After some negotiation, Mr. Smith purchased the house for R390 000. Jones’s producer surplus is …

[1] R40 000.

[2] R390 000.

[3] R30 000.

[4] R10 000.

[5] Cannot be calculated from the given information.

26.In the short run the competitive firm will produce at the point where MC=MR at a point where MC is rising. At this point …

[1] the producer will always make a normal profit.

[2] the producer may make a loss.

[3] the producer may make an abnormal profit.

[4] the producer must cover at least his average variable cost.

[5] [2] and [3] are both correct.

27. Along any downward-sloping straight-line demand curve …

[1] both the price elasticity and slope vary.

[2] the price elasticity varies but the slope is constant.

[3] the slope varies, but the price elasticity is constant.

[4] both the price elasticity and slope are constant.

[5] at the origin the price elasticity is equal to one.

28. Deadweight loss occurs when …

[1] producer surplus is greater than consumer surplus.

[2] maximum level of total welfare is not achieved.

[3] consumer surplus is reduced.

[4] an inferior good is consumed.

[5] both consumer and producer surplus is zero.

29. Suppose the market supply curve is p = 10 + Q. At a price of R20, producer surplus equals

[1] R50.

[2] R25

[3] R100.

[4] R10.

[5] R75.

30.A cement company uses block pricing to sell cement to its customers. Block pricing is an example of …

[1] first-degree price discrimination.

[2] second-degree price discrimination.

[3] third-degree price discrimination.

[4] Block pricing is not a type of price discrimination.

[5] bundling.

31. In the kinked demand curve model, if one firm increases its price, other firms will …

[1] reduce their price.

[2] compete on a non-price basis.

[3] raise their price.

[4] maintain their price constant.

[5] wage a price war.

32. Which of the following is true?

[1] In Bertrand oligopoly each firm believes that their rivals will hold their output constant if it changes its output.

[2] In Cournot oligopoly firms produce an identical product at a constant marginal cost and engage in price competition.

[3] In Oligopoly a change in marginal cost never has an effect on output or price.

[4] None of the above.

33. Engen and Shell are two local petrol stations. Although they have different constant marginal costs, they both survive continued competition.” Tom and Jack do not constitute a …

[1] Monopolistically Competitive industry.

[2] Cournot oligopoly.

[3] Stackelberg oligopoly.

[4] Bertrand oligopoly.

34.When a firm charges each customer the maximum price that the customer is willing to pay, the firm …

[1] engages in a discrete pricing strategy.

[2] charges the average reservation price.

[3] engages in second-degree price discrimination.

[4] engages in first-degree price discrimination.

[5] engages in a price war.

35.The kinked demand curve model of oligopoly assumes that the elasticity of demand …

[1] in response to a price increase is less elastic than the elasticity of demand in

response to a price decrease.

[2] in response to a price increase is more elastic than the elasticity of demand in response to a price decrease.

[3] is constant regardless of whether price increases or decreases.

[4] is perfectly elastic if price increases and perfectly inelastic if price decreases.

36. All of the following are ways monopolistically competitive firms differentiate their products

EXCEPT …

[1] Selling with slightly different physical characteristics.

[2] Selling products at different locations.

[3] Offering different levels of service that come with a product.

[4] Creating a special aura or image for the product with advertising.

[5] None of the above are exceptions they are all ways of differentiating products.

37. Which of the following is true?

[1] In a Bertrand oligopoly, each firm believes that their rivals will hold their output constant if it changes its output.

[2] In a Cournot oligopoly, firms produce an identical product at a constant marginal cost and engage in price competition.

[3] In an oligopoly, a change in marginal cost never has an effect on output or price.

[4] None of the above is true.

38.A Market structure in which there is one large firm that has a major shaqre of the market and many smaller firms supplying the rest of the remainder of the market is called the …

[1] Stackelberg model.

[2] kinked demand curve model.

[3] dominant firm model.

[4] Cournot model.

[5] Bertrand model.

39.The oligopoly model that predicts that oligopoly prices will tend to be very rigid is the_ model.

[1] Cournot

[2] Stackelberg

[3] dominant firm

[4] kinked demand

[5] Nash

40.Sue and Jane each own a local petrol station. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute …

[1] a Sweezy oligopoly.

[2] a Cournot oligopoly.

[3] a Bertrand oligopoly.

[4] None of the above.

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