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1. A
taxation reform reduces fuel tax but introduces a new licence tax levied on
each vehicle. For a company that needs to use a single truck, the immediate 1/1
effect of the reform is to:
a) increase fixed cost but reduce variable cost
b) increase both fixed and variable cost
c) reduce variable cost with no impact on fixed cost
d) reduce fixed cost but increase variable cost
2. Suppose that the short-run total cost can be written as: TC = 100 + 600Q –
20Q2 + Q3. Then, a firm would prefer to keep producing rather than shutting 1/1
down production if the price were higher than:
a) 100
b) 75
c) 500
d) 250
3. A demand
elasticity of -0.5 implies:
1/1
a) a price rise of 10% leads to a fall in demand of 0.5%
b) a price rise of 1% leads to a fall in demand of 5%
c) a price rise of 10% leads to a fall in demand of 5%
d) a price rise of 1% leads to a fall in demand of 50%
4. Suppose the demand curve for corn
is Q = 100 – 10p and the supply curve is Q
= 10p. The government imposes a
price ceiling of p = 3. What effect does this 1/1
intervention has on consumer
surplus (CS) and total welfare (W)?
a) CS = +60; W = -20
b) CS = -20; W = -40
c) CS= +40; W = -20
d) CS = +40; W = -40
5. Suppose that the short-run total cost can be written as: TC = 100 + 600Q –
20Q2 + Q3. Then, a firm would prefer to keep producing rather than shutting 1/1
down production if the price were higher than:
a) 100
b) 75
c) 500
d) 250
7. A company produces 1000 units of a certain product. Labour costs are £5 per
unit, and a specialised machine is also needed. The machine, bought for £10,000 1/1
one year ago, currently works at 70% capacity and has a resale value of £5,000.
The company intends to bid for another contract to sell 100 extra units of the product.
The lowest price per unit that the company should tender for the contract is:
(a) 55
(b) 50
(c) 5
(d) 105
8. Suppose that short-run MC = 5 + 5q for an
individual firm in a competitive
market. If there are 10 identical firms in
this market, then the short-run supply 1/1
curve can be written as:
(a) P = 5 + 0.5Q
(b) P = 50 + 5Q
(c) P = 5 + 2Q
(d) P = 1 + 0.5Q
9. When the government installs a price support
program that requires the
government to purchase all of a good not bought in
the private economy at the 1/1
support price, changes in producer surplus
(a) are negative
(b) are positive, but are more than offset by the cost to consumers and the
government
(c) are positive, and are not offset by the cost to consumers and the government
(d) and consumer surplus are both positive
10. An
effective price ceiling causes a loss of
1/1
(a) producer surplus for certain, and possibly consumer surplus as well
(b) consumer surplus only
(c) producer surplus only
(d) consumer surplus for certain, and possibly producer surplus as well
11. The market demand and supply functions for milk are: QD = 58 - 30.4P and
QS = 16 + 3.2P . A price floor of £1.75 is implemented. If the government 0/1
purchases all the excess units at £1.75, calculate the milk expenditures by government.
(a) £21.6
(b) £1.75
(c) £29.4
(d) £4.8
12. Suppose that for the individual firm in a competitive market, LRAC = 100 –
20q + 2q2. If this is a constant cost industry and demand can be represented as 1/1
P = 100 – 0.1Q, how many firms will there be when the industry is in long-run
equilibrium?
(a) 50
(b) 100
(c) 500
(d) An infinite number
13. A firm in a perfectly competitive market has a daily short-run total cost of
production equal to 40 + 10q +0.1 q2, where q is the number of units produced 1/1
per day. The prevailing market price is £20 per unit. What is the firm’s daily maximum
profit?
(a) zero as this is a perfectly competitive industry
(b) 210
(c) 250
(d) 40
(e) none of the above
14. The propylene industry is perfectly competitive. Each producer has the long-
run total cost function 40 q – 6 q2 + q3/3. The market demand curve for propylene 1/1
is 2200 – 100P. How many firms are in the propylene market in a long-run competitive
equilibrium?
(a) 10
(b) 50
(c) 100
(d) an infinite number
(e) an indeterminate number
15. The average short-run total cost of producing a
product is given by the
formula: AC = 12/q + 2 + 0.02q, where q is the output
quantity. If the company 1/1
faces a demand curve of P = 4 – 0.01Q, the profit
maximising output is:
(a) 90
(b) 200
(c) 100
(d) 100/3
16. Suppose the demand curve for corn
is Q = 100 – 10P and the supply curve is
Q = 10P. The government imposes a
price ceiling of P = 3. What effect does this 1/1
intervention has on consumer
surplus (CS) and total welfare (W)?
a) CS = +60; W = -20
b) CS = -20; W = -40
c) CS= +40; W = -20
d) CS = +40; W = -40
17. Suppose that TC = 100 + 10q + q2 for a firm in a competitive market. What is
the minimum price necessary for this firm to produce any output in the short 0/1
run?
(a) Any positive price.
(b) Greater than 10.
(c) Greater than 100.
(d) Greater than 20.
18. If the total cost of producing 6
units is £48 and the marginal cost of the
seventh unit is £15, then we can say
for certain that: 0/1
(a) the average total cost of 7 units is £9
(b) the average variable cost of 7 units is £9
(c) fixed costs are £8
(d) fixed costs are £33
(e) none of the above are true
19. Suppose
the short-run total cost function is TC = 50 + 12q. Which of the
following
statements is true at all levels of production? 1/1
(a) AFC > MC.
(b) MC = AVC.
(c) AFC < AVC.
(d) MC = ATC.
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