Econ

ECON1001: Introduction to Microeconomics

Graded Worksheet 2 (15%)

Due date: April 11, 2018 at 11:55 pm EC

Instructions: Answer ALL Questions. Include referencing where additional sources

have been used. APA format is recommended

Question 1

a. Draw a diagram to show the long run equilibrium condition of the perfectly

competitive firm [5 marks]

b. Explain three reasons why monopolies arise [3 marks]

c. When does a perfectly competitive firm temporarily shut down production?

When does it leave the industry all together? [4 marks]

d. What obstacles might a group of oligopolists encounter in forming a cartel? [4 marks]

Question 2

a. Define economies and diseconomies of scale and explain why they occur. [4 marks]

b. Explain the relationship between total product, marginal product, and average product. [3 marks]

c. What is the law of diminishing returns and what does it explain the shape of the short run average cost curve. [3 marks]

d. Why is the level of output at which marginal revenue equals marginal cost the profit maximizing output? [4 marks]

Question 3

a. Define the following

i. Average Product

ii. Marginal Product

iii. The Production Function [6 marks]

b. Complete the following table assuming that each unit of labour costs $65

[12 marks]

L Q AP MP TFC $

TVC $

TC $

AC $

MC $

0 - 400

1 6 65

2 9

3 16

4 19

5 20

Question 4

a. Todd earns a weekly income of $5000. Suppose she wishes to spend this income

on two goods chicken and bags only. Chicken cost $200 per meal while bags

cost $500.

i. Draw Todd’s budget line. Putting Chicken on the Y axis.

ii. Suppose his income increases to $10000 per week, illustrate what

happens to his budget line. [6 marks]

b. List and explain three properties of indifference curves. [3 marks]

c. What is the marginal rate of substitution? [3 marks]

Total 60 Marks