economy

Spring 20 – Final Assessment (20%)

ECON251 – Microeconomics

Spring 2020

Name ID Signature

Instructions:

The following assignment is an individual work. It should be solved and submitted on

moodle by Tuesday 9th of June. Answer clearly and show your steps.

Multiple-choice questions (30 points)

Circle your answer in the below multiple-choice answer sheet.

Each correct answer is 3 points

1) Formula for average total cost is

a) VC/Q

b) TC-Q

c) AVC+AFC

d) ATC-AFC

2) At which level a firm can minimize the cost of output?

a) At minimum ATC

b) At minimum AFC

c) At Minimum AVC

d) At minimum MC

3) According to the optimal rule, at which level a firm can maximize its profit?

a) MC=MR

b) MC<MR

c) MC>MR

d) TC=TR

4) Which of the following statements about a monopoly is FALSE?

a) A monopoly is the only supplier of the good.

b) Monopolies have no barriers to entry or exit.

c) The good produced by a monopoly has no close substitutes.

d) None of the above; that is, all of the above answers are true statements about a

monopoly.

5) A defining characteristic of a natural monopoly is that:

a) it exists because of legal barriers to entry.

b) it has no close substitutes.

c) its average total cost curve slopes downward as it intersects the demand curve.

d) its demand curve slopes downward.

6) The income elasticity of demand equals

a) the percentage change in the quantity demanded divided by the percentage change in the income.

b) the change in the quantity demanded divided by the change in price.

c) the percentage change in the price divided by the percentage change in the quantity

demanded.

d) the change in the price divided by the change in quantity demanded

7) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is

a) 0.5. b) 20.0.

c) 2.0.

d) 10.0

8) Price elasticity of demand of Good A is 0.7. If the firm increases price, its revenue will most possibly

a) Decrease b) Stay unchanged

c) Increase

d) Will equal to zero

9) With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output is:

a) 200 units. b) 400 units.

c) 800 units.

d) 1,600 units.

10) Marginal cost is calculated by dividing the change in total cost over change in:

a) Quantity of labor b) Amount of rent

c) Quantity of output

d) Quantity of materials

Multiple choice answer sheet

Question Choice of answer

1 a b c d

2 a b c d

3 a b c d

4 a b c d

5 a b c d

6 a b c d

7 a b c d

8 a b c d

9 a b c d

10 a b c d

Problem 1 (10 points)

Output (units per day)

Total fixed cost (dollars)

Total variable cost

(dollars)

Total cost (dollars)

0 20 0 20

4 20 25 45

9 20 50 70

13 20 75 95

16 20 100 120

18 20 125 125

a) From the above table, what is the average total cost of producing 13 units? Show your

steps.

(3 points)

b) From the above table, calculate the average total variable cost of producing 9 units of

output. Show your steps.

(3 points)

c) Using the data in the above table, when output increases from 9 to 13 units, Calculate

the marginal cost of one of those 4 units. Show your steps

(4 points)

Problem 2 (10 points)

Price (dollars per bushel) Quantity demanded (bushels)

8 2,000

7 4,000

6 6,000

5 8,000

4 10,000

3 12,000

The table above gives the demand schedule for snow peas.

a) Using the midpoint method, calculate the price elasticity of demand when price increase

from $5.00 to $6.00

(5 points)

b) Is the Demand elastic, inelastic or unitelastic? Conclude on what will happen to Total

Revenue when price increases.

(5 points)

Problem 3 (15 points)

The following graph represents a farm producing bushels of potatoes in a competitive market

a) Identify the price that corresponds to break-even and the one corresponding the shut- down price on the graph. Explain your answer for each one of them.

(7.5 points)

b) If marginal revenue is at 4 dollars. Calculate profit and asses whether the company is gaining or losing. Conclude whether the company should stay in the market or not.

(7.5 points)

60 40 35 30 0

$7

6

5

4

3

MC

ATC

AVC

C B

A

E

Price, cost of

bushel

Quantity of Potatoes (bushels)

Problem 4 (15 points)

a) Following the graph above, label the curves and indicate which market structure best

describes the situation (pure competition or monopoly)?

(5 points)

b) In order to maximize profit, how many units should this company produce? Explain your answer.

(5 points)

c) Calculate the company’s profit. (5 points)

200 Quantity

25

10 C

A

B

12

Price, cost, marginal

revenue

Essay (20 points)

““Monopolist is a person, group or organization with a monopoly. In other words, an individual

or company that controls all of the market for a particular good or service.”

Your task is to write a paragraph explain in details, how the producer, in Monopoly, can

determine the Price-Quantity combination that will lead to maximum profit?

(Use the format with introduction, body text and conclusion)

1. Define the market structures that exist

2. Define Monopoly and w hat are the characteristics of monopoly

3. Explain profitability in Monopoly

4. Explain the main differences between Competitive market and monopoly