Introduction to Microeconomics
Tutorial Questions II
TUTORIAL QUESTIONS (II) FOR INTRODUCTION TO MICROECONOMICS
A. MULTIPLE CHOICE QUESTIONS
[Link] monopolist in the short run equilibrium may experience economic profit which:
a) Is always greater than zero b) Is always zero c) Is always positive d) May be greater than, equal to, or
less than zero e) Is higher than expected
3. We can use game theory to analyse how a firm can behave in:
a) Monopoly b) Oligopoly c) Perfect competition d) Monopolistic competition
4. Which one of the followings is not one of the assumptions of perfectly competitive market?
a) There are many sellers and buyers in the industry b) There is a price discrimination c) There are no
restrictions on entry to the market d) The firm in the perfectly competitive market is a price taker
5. Profit maximisation in monopoly occurs where;
a) MC= P b) MR=AC c) MR = P d) MC=MR
6. For the monopolist, marginal revenue is always:
a) Less than AR b) More than AR c) Equal to AR d) The same as AC e) The same as demand curve
8. The firm will hire (employ) labour until:
a) Wage equals marginal revenue product of labour
b) Wage is smaller marginal revenue product of labour
c) Wage bigger than marginal revenue product of labour
d) Price equals marginal revenue
9. The relationship between average cost (AC) and marginal cost (MC) is:
a) When MC is above AC, AC rises
b) When MC is below AC, AC rises
c) AC increases as long as MC increases
d) MC > AC when AC is declining
10. If a firm sells 10 units of output at 50 TL per unit and 11 units of output when price is reduced to
48 TL, its marginal revenue for the last unit sold is:
a) 11 b) 28 c ) 2480 e) 280
11. When the average cost decreases as the firm increases its output in the long run, then:
a) There is an increasing returns to scale b) There is a decreasing returns to scale c) There is constant
returns to scale d) There is diminishing returns
Labour Total product Average product Marginal product
1 6 6 6
2 18 a b
12. According to above table, the numbers for a and b are:
a) 8 and 6 respectively b) 9 and 9 respectively c) 12 and 2 respectively d) 9 and 12 respectively
13. The firm in the competitive market will shut down if the price is lower than
a) average variable cost b) marginal revenue c) average fixed cost d) average total cost
14. For the monopolist marginal revenue is always:
a) Less than AR b) More than AR c) Equal to AR d) The same as AC
ESSAY TYPE QUESTIONS
2. Derive and explain the supply curve of the firm in perfectly competitive market in the short run by
assuming that the price increases from P0 to P1, from P1 to P2, and from P2 to P3.
3. explain very briefly what you understand from game theory.
4. The following figure illustrates a payoff matrix for a very simple game (two firms and two strategies).
According to the figure, if you were the decision maker in firm A, which strategy would you follow and
why?
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Introduction to Microeconomics
Tutorial Questions II
Firm B’s Strategy
Firm A’s Strategy High Price Low Price
Both Firms make 6 million profit Firm A make 2 million profit while
firm B makes 8 million profit
High Price
Low Price Firm A makes 8 million profit Both firms make 4 million profit
while firm B makes 2 million profit
[Link] price discrimination and dominant strategy
6. Show and explain how monopoly makes profit in the long ru
8. Explain very briefly why monopolist will continue to make profit in the long run
9. Explain the following concepts: marginal revenue, marginal cost, average revenue, average cost
10. Show and explain why marginal cost curve cuts average cost curve when average cost curve is at
minimum
12 Why the demand curve of the monopolist is negatively sloped?
14. What are the barriers to entry to the market in monopoly
15. Write down the basic assumptions of perfect competition
16. Show and explain very briefly how a firm in perfectly competitive market suffers losses in the short
run
17. Explain very briefly why marginal cost curve cuts average cost curve when average cost curve is at
minimum
18. Show and explain why monopolist causes welfare loss compared to a perfectly competitive market.
19. Show and explain how MC curve is at the same time the supply curve of the firm.
21. A firm’s cost curves are given by the following table:
Q TFC TVC TC MC AVC
0 100 100 - -
1 100 160
2 100 200
3 100 220
4 100 224
5 100 270
6 100 320
7 100 380
Complete the blank columns in the chart above. Show your calculations on the table.. Suppose that a
perfectly competitive firm faces these costs and that the short-run market price is 60TL per unit of
output. At this price, how many units of output will the firm sell? What would be the profit of the
firm?
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