TOPIC 1

INTRODUCTION TO ECONOMICS

1. The following table shows the relationship between the output of

capital goods and consumer goods:

Combination Capital Goods (units) Consumer Goods (units)

A 0 200

B 25 185

C 50 160

D 75 125

E 100 75

F 125 0

(a) Draw (using the graph paper provided) the production

possibilities curve (PPC) and label capital good on the horizontal

axis.

(2 marks)

(b) As you move between the various combinations listed in the

table, what is the opportunity cost per unit of capital goods in

terms of consumer goods?

(3 marks)

1
 (c) Is the opportunity cost in the above table decreasing, constant

or increasing?

(1 mark)

(d) On the same graph:

(i) Draw a new production possibilities curve (PPC) that

illustrates the effect of technological progress.

(1 mark)

(ii) Mark a point ‘U’ that represents inefficient use of

resources.

(1 mark)

(Total: 8 marks)

2. With existing resources, Country ABC can produce any of the

combinations of two goods, X and Y as shown in the table below:

Good X (units) Good Y (units)

250 0

200 60

150 110

100 150

50 180

0 200

2
Based on the table above, answer the following questions:

(a) Draw (using the graph paper provided) the production

possibility curve (PPC).

(2 marks)

(b) If the society is producing 150 units of good X and 110 units of

good Y, what is the opportunity cost of producing another 40

units of good Y?

(1 mark)

(c) Mark the following points in your diagram above in (a):

(i) U – to indicate that unemployment exists in the economy.

(ii) F – to indicate full employment level.

(iii) S – to indicate scarcity.

(3 marks)

(d) Draw a diagram (without scale) for each of the following to

show the effect on the production possibility curve (PPC) as a

result of:

(i) An improvement in the technology used to produce the

two goods above.

(1 mark)

(ii) A devastating war hit the economy.

(1 mark)

(Total: 8 marks)

3
3. The diagram below depicts the production possibilities curve (PPC) for

a nation producing carrots and tomatoes. The usual assumptions

regarding the production possibilities curve (PPC) are implied:

Carrots (kg)

1000

500

0 2000 2500 Tomatoes

(kg)

(a) Calculate the opportunity cost of:

(i) Producing 2500 kg of tomatoes.

(1 mark)

(ii) Increasing the production of carrots from 500 kg to

1000 kg.

(1 mark)

(b) Is the value of opportunity cost increasing or constant? Justify

your answer.

(2 marks)

4
 (c) Illustrate in separate diagrams (without scale) the effect of

the following situations on the production possibilities curve

(PPC):

(i) A massive flood hit the country.

(2 marks)

(ii) An introduction of a new fertilizer that increases the

yield of crops.

(2 marks)

(d) List two (2) assumptions used in the construction of production

possibilities curve (PPC).

(2 marks)

(Total: 10 marks)

4. The following diagram shows the production possibilities curve (PPC)

for Rayland:

5
 Rubber

Palm Oil
0

(a) Explain the position of W, X and Y in terms of production of

rubber and palm oil.

(3 marks)

(b) When can Rayland produce at Y?

(2 marks)

(c) What are the problems that could surface if Rayland chose to

produce at X?

(2 marks)

(d) Is Rayland facing an increasing, decreasing or constant

opportunity cost? Explain.

(2 marks)

6
 (e) Give one (1) assumption of the production possibility curve

(PPC).

(1 mark)

(Total: 10 marks)

5. The diagram below shows the production possibility curve (PPC) for

rice and cloth:

Rice
(kg)

B
D

Cloth
0 (m)

(a) Identify the points which represent:

(i) Scarcity.

(ii) Choices.

(iii) Inefficiency.

(3 marks)

7
(b) Copy the above diagram and indicate the effects on the

production possibility curve (PPC) when the following occur

(draw without scale a different diagram for each of the

following):

(i) The discovery of a new kind of seedling that can increase

the yield of rice.

(1 mark)

(ii) The invention of a more efficient cloth – making machine.

(1 mark)

(iii) An improvement in the technology of producing both rice

and cloth.

(1 mark)

(c) What is the opportunity cost indicates by the concavity of the

production possibility curve (PPC)?

(1 mark)

(d) Give three (3) assumptions in constructing a production

possibility curve (PPC).

(3 marks)

(Total: 10 marks)

8
6. The following table shows the production possibilities combination in

Country XX:

Combination Shoes (units) Cakes (kg) Opportunity Cost per unit of Shoes

A 0 300

B 50 240

C 100 180

D 150 120

E 200 60

F 250 0

Based on the table above, answer the following questions:

(a) Without scale, draw the production possibilities curve.

(2 marks)

(b) Copy and complete the table above.

(2 marks)

(c) If country XX wishes to produce 350 unit of shoes and 350 kg

of cakes:

(i) What is the implication?

(1 mark)

(ii) Suggest any two (2) ways in which this combination can

be achieved.

(2 marks)

9
 (iii) What is the opportunity cost of producing 50 units of

shoes?

(1 mark)

(d) State two (2) assumptions in constructing a production

possibilities curve.

(2 marks)

(Total: 10 marks)

7. (a) Define economics from the conventional and Islamic

perspectives.

(4 marks)

(b) Explain two (2) characteristics and two (2) advantages of

capitalist and mixed economic systems.

(8 marks)

(c) Explain the principles and features underlying the Islamic

economic system.

(8 marks)

(Total: 20 marks)

8. (a) What do you understand by the term ‘price mechanism’

economic system?

(4 marks)

10
(b) How does this system solve the basic economic problems?

(8 marks)

(c) What are the weaknesses of this system?

(8 marks)

(Total: 20 marks)

11
 TOPIC 2 and TOPIC 3

THEORY OF DEMAND and THEORY OF SUPPLY

ELASTICITY OF DEMAND and ELASTICITY OF SUPPLY

1. Distinguish ‘change in demand’ from ‘change in quantity demanded’.

(10 marks)

(Total: 10 marks)

2. The law of demand states that as price increases, the quantity

demanded will fall and vice versa, ceteris paribus. However, this

statement is not true. Explain.

(10 marks)

(Total: 10 marks)

3. State the law of demand. How does the law of demand explain a

demand curve?

(10 marks)

(Total: 10 marks)

4. Using suitable examples, discuss:

(a) Three (3) determinants of demand.

(6 marks)

(b) Two (2) determinants of price elasticity of demand.

(4 marks)

(Total: 10 marks)

12
5. The following table shows the relationship between a consumer’s

income and the quantity demanded for goods A, B and C:

Income (RM) Quantity Demanded (kg)

Good A Good B Good C

1000 200 600 150

2000 400 550 150

3000 600 400 150

4000 800 300 150

5000 1,000 150 150

(a) Calculate the income elasticity of demand for good A, good B

and good C when income falls from RM5000 to RM3000.

(4 ½ marks)

(b) Complete the following table:

Income Elasticity of Demand Type of Good

Positive

Negative

Zero

(1 ½ marks)

(c) Define the following:

(i) Cross elasticity of demand.

(ii) Price elasticity of demand.

13
 (iii) Income elasticity of demand.

(iv) Elasticity of supply.

(2 marks)

(Total: 8 marks)

6. Given:

Price of Z (RM) Quantity Quantity Income (RM)

Demanded for Z Demanded for X

(units) (units)

1.50 120 80 2000

2.00 110 70 1800

2.50 100 60 1500

3.00 90 50 1300

(a) Calculate the cross elasticity of demand for good X when price

of Z increases from RM2 to RM3.

(2 marks)

(b) What is the relationship between good X and good Z? Give an

example.

(2 marks)

(c) Calculate the income elasticity of demand for good Z when

income increases from RM1500 to RM2000.

(2 marks)

14
 (d) Based on question (c), what is good Z?

(1 mark)

(Total: 7 marks)

7. A 20% rise in the price of good S results in the following:

Good % Change in Quantity Demanded

T Increase by 50%

U Decrease by 30%

V Remains the same

(a) Define cross elasticity of demand.

(2 marks)

(b) Calculate cross elasticity of demand between good S and:

(i) Good T.

(ii) Good U.

(iii) Good V.

(3 marks)

(c) Name the relationships between good S and each of the other

goods based on your answer in (b).

(3 marks)

15
 (d) What is the difference between an elastic demand and an

inelastic demand?

(2 marks)

(Total: 10 marks)

8. The following table shows the quantity demanded for goods B, C and D

with respect to the price of good A:

Price of Good A Quantity of Good B Quantity of Good C Quantity of Good

(RM) (kg) (kg) D

(kg)

40 2 5 5

30 3 3 5

20 4 2 5

Assume price of good A increases from RM30 to RM40:

(a) State the formula for the cross elasticity of demand.

(1 mark)

(b) Calculate the cross elasticity of demand for good B. What is

the relationship between good A and good B? Give one (1)

example.

(3 marks)

16
 (c) Calculate the cross elasticity of demand for good C. What is

the relationship between good A and good C? Give one (1)

example.

(3 marks)

(d) Calculate the cross elasticity of demand for good D. What is

the relationship between good A and good B? Give one (1)

example.

(3 marks)

(Total: 10 marks)

9. The schedule below shows the relationship between the price of good

X and the quantity demanded for good X and Y:

Price of Good X (RM) Quantity Demanded Quantity Demanded

for Good X (kg) for Good Y (kg)

5 160 100

10 140 120

15 120 140

20 100 160

(a) Calculate the price elasticity of demand for good X if the price

of good X falls from RM10 to RM5 per kg. State whether it is

elastic or inelastic.

(2 marks)

17
(b) Calculate the cross elasticity of demand for good Y when price

of X increases from RM10 to RM20. State whether good X and

good Y are complements or substitutes.

(2 marks)

(c) Draw a diagram (without scale) to show what will happen to the

demand for good Y when price of good X increases.

(2 marks)

(d) When the income of consumer increases from RM1000 to

RM1400, the demand for good X increases from 40 to 80 units.

Calculate the income elasticity of demand for good X and

identify the type of good X.

(2 marks)

(e) List two (2) factors that can influence the price elasticity of

demand.

(2 marks)

(Total: 10 marks)

18
10. (a) The schedule below shows the demand for goods A, B and C

in year 2000 and 2001:

Year Quantity Demanded Consumers

A B C Income (RM)

2000 40 25 45 2000

2001 36 30 45 2500

(i) Calculate the income elasticity of demand for the three

goods when income increases from RM2000 to RM2500.

(3 marks)

(ii) State the type of each good and give an example:

Type of Good Example

Good A

Good B

Good C

(3 marks)

(iii) Given that the price of good A is RM2 and RM4 in year

200 and year 2001 respectively. Calculate the cross

elasticity between good A and good B when price of good

A increases from RM2 to RM4. State the relationship

between the two goods.

(2 marks)

19
 (b) Indicate what will happen to the total revenue (whether increase,

decrease or constant) by filling up the last column:

Price Quantity Price Elasticity of Demand Total Revenue

Demanded

Increase Decrease More than one

Decrease Increase More than one

Increase Decrease Less than one

Decrease Increase One

(2 marks)

(Total: 10 marks)

11. Explain three (3) determinants of supply.

(10 marks)

(Total: 10 marks)

12. (a) Define supply and explain the law of supply.

(4 marks)

(b) Discuss exceptional supply.

(6 marks)

(c) Explain what is meant by:

(i) Elastic supply?

(ii) Inelastic supply?

(iii) Unitary elastic supply?

20
 (iv) Perfectly elastic supply?

(v) Perfectly inelastic supply?

(10 marks)

(Total: 20 marks)

13. (a) Explain and illustrate graphically the difference between

‘change in quantity supplied’ and ‘change in supply’.

(10 marks)

(b) Explain any four (4) non – price determinants of supply.

(8 marks)

(c) Define price elasticity of supply.

(2 marks)

(Total: 20 marks)

21
 TOPIC 4 and TOPIC 5

MARKET EQUILIBRIUM

APPLICATION OF DEMAND AND SUPPLY ANALYSIS

1. You are given the following data on the demand for and supply of

chicken at different price level:

Price Per Kg (RM) Quantity Demanded Quantity Supplied (kg)

(kg)

4 75 25

5 60 35

6 50 50

7 40 65

8 25 80

(a) On the graph paper provided, draw the demand and supply

curves.

(2 marks)

(b) Determine the equilibrium price and quantity.

(1 mark)

(c) Suppose the price of chicken decreases to RM4 per kilogram,

state whether there is a surplus or shortage? How much?

(1 mark)

22
 (d) Calculate the price elasticity of demand for chicken if the price

increases to RM8 per kilogram from the equilibrium price.

Determine whether demand is elastic or inelastic?

(2 marks)

(e) Draw a diagram (without scale) to show the change in

equilibrium price and quantity of chicken when there is a fall in

the price of beef.

(2 marks)

(Total: 8 marks)

2. The following diagram shows demand and supply schedules for good A:

Price (RM) Quantity Supplied Quantity Demanded

(units) (units)

1 190 250

2 240 200

3 290 150

4 340 100

5 390 50

(a) In the graph paper provided, draw demand and supply curves

for good A.

(2 marks)

23
 (b) Determine the equilibrium quantity and price for good A.

(2 marks)

(c) If demand increases by 40 units at every price level:

(i) Show this change in the same graph for (a) above.

(2 marks)

(ii) Determine the new equilibrium price and quantity for

good A.

(2 marks)

(Total: 8 marks)

3. Graphically (without scale) show the changes in equilibrium given the

following situation:

(i) Increase in supply.

(ii) Decrease in demand.

(iii) Increase in demand is more than increase in supply.

(iv) Decrease in demand is less than increase in supply.

(10 marks)

(Total: 10 marks)

24
4. Answer the following questions based on the information given below:

Price (RM) Quantity Quantity Quantity

Demanded (units) Supplied (units) Supplied After

Tax (units)

30 70 20 0

35 65 25 5

40 60 30 10

45 55 35 15

50 50 40 20

55 45 45 25

60 40 50 30

65 35 55 35

70 30 60 40

Note that the amount of excise tax per unit of production is RM20:

(a) Determine the following values before and after the tax was

imposed:

(i) Equilibrium price.

(ii) Quantity demanded and supplied at equilibrium.

(4 marks)

(b) Sketch (without scale) a graph showing the equilibrium price

and quantity before and after tax.

(2 marks)

25
 (c) Calculate the total amount of tax paid by the consumer and

producer.

(2 marks)

(Total: 8 marks)

5. Below is the demand and supply schedule of oranges in the market:

Price (RM Per Kg) Quantity Demanded Quantity Supplied (kg)

(kg)

5 100 55

6 90 65

7 80 80

8 70 95

9 60 110

(a) What is the equilibrium price and quantity?

(2 marks)

(b) What problem would arise in the market if the government

fixed price at RM6?

(2 marks)

(c) Why does the government fix the above price?

(1 mark)

26
 (d) Sketch (without scale) a diagram to show questions (a) and (b).

(2 marks)

(Total: 7 marks)

6. (a) A sepaktakraw tournament was held at the Kangar Municipal

Hall. The hall could accommodate a maximum of 2000

spectators. Below is the data on demand for tickets at various

price level:

Price of Ticket (RM) 2 3 4 5 6

Quantity Demanded 3000 2500 2000 1500 1000

for Tickets (units)

(i) What will happen if the management of the tournament

set the price at RM3?

(1 mark)

(ii) How much is the equilibrium market price for the ticket?

(1 mark)

(iii) Sketch (without scale) a diagram to illustrate your

answer in part (ii).

(2 marks)

(b) The diagram below shows the market equilibrium for good X

before and after government imposed an indirect tax of RM2

per unit:

27
 Price
Supply after tax

Supply before tax

4.80
4

Demand

0 70 120 Quantity of
output

(i) What are the equilibrium price and quantity before

tax?

(1 mark)

(ii) What are the equilibrium price and quantity after

tax?

(1 mark)

(iii) Find the value of T.

(1 mark)

(iv) Calculate the amount of tax passed on to

consumers.

(2 marks)

28
 (v) Why do producers have to absorb most of the tax

burden?

(1 mark)

(Total: 10 marks)

7. The following table shows the demand and supply schedules for

langsat in a month:

Price Quantity Market Quantity Supplied Market

(RM per kg) Demanded per Demand per Household Supply

Household (kg) (kg) (kg) (kg)

1 10 10

2 8 20

3 6 40

Suppose there are 100 households and 40 suppliers in the market:

(a) For each price level, determine the market demand for and

supply of langsat.

(3 marks)

(b) Using a graph paper, plot the market demand and market supply

curves for langsat.

(2 marks)

29
 (c) On the curve you have plotted in (b), determine the price and

the quantity of langsat at which the market will be cleared.

(1 mark)

(d) Based on (c), will there be any shortage or a surplus? Why?

(2 marks)

(e) Give two (2) factors that influence the increase in supply for

langsat.

(2 marks)

(Total: 10 marks)

8. The diagram below shows both demand and supply curves for chicken

in a market in Shah Alam for a month:

Price of Chicken (RM)

SS1
DD1 SS0
DD0

e2

Pe e0
Pf

0 Qe Quantity of Chicken
(RM)

30
 (a) What is Pe and Qe called?

(1 mark)

(b) If the government sets the price for chicken at Pf per kilogram,

what happens to the demand and supply in the market? What is

this price called?

(3 marks)

(c) State two (2) reasons why the government takes the above

action refer to question (b).

(2 marks)

(d) Give two (2) factors that might shift the demand curve for

chicken from DD0 to DD1.

(2 marks)

(e) Give two (2) reasons why the market equilibrium for chicken

might move fro e0 to e2.

(2 marks)

(Total: 10 Marks)

9. There are three (3) vegetable sellers in a wet market. The quantity of

vegetables supplied by each seller at different price levels is

presented in the schedule below:

31
Price per Kg Quantity Quantity Quantity Market Quantity

(RM) Supplied by Supplied by Supplied by Supplied (kg)

Seller A (kg) Seller B (kg) Seller C (kg)

8 20 32 35

7.50 19 28 33

7 18 24 31

6.50 17 20 29

6 16 16 27

5.50 15 12 25

The demand schedule for vegetables in the wet market is given as follows:

Price per Kg Quantity Quantity Quantity Market Quantity

(RM) Demanded Demanded Demanded Demanded (kg)

by Buyer 1 by Buyer 2 by Buyer 3

(kg) (kg) (kg)

8 10 6 15

7.50 12 10 20

7 14 14 25

6.50 16 20 30

6 18 26 35

5.50 20 32 40

(a) Complete the above table.

(2 marks)

32
 (b) Using a graph paper, plot the market demand and supply curves

for vegetables in the wet market.

(2 marks)

(c) Based on the graph in (b), identifies the price and quantity of

vegetables that will clear the market.

(2 marks)

(d) Suppose the government removes the subsidy on vegetables by

RM1. Show the effect of this action on the supply of vegetables

in the diagram drawn in (b).

(1 mark)

(e) Label the new equilibrium point with E1.

(1 mark)

(f) If the government fixed the price of vegetables to be RM6,

what type of price control is this? Is there a shortage or

surplus, by how much?

(2 marks)

(Total: 10 marks)

10. The table below shows the demand and supply schedules of sugar per

week at Bandar Inderajaya:

33
 Price Quantity Supplied Quantity Demanded

(RM per kg) (kg) (kg)

1.35 20.0 100.0

1.40 45.0 80.0

1.45 70.0 70.0

1.50 90.0 65.0

1.55 110.0 60.0

1.60 125.0 55.0

1.65 140.0 50.0

1.70 150.0 45.0

(a) Using a graph paper, plot the demand and supply curve of sugar

and determine its equilibrium market price and quantity at

Bandar Inderajaya.

(2 marks)

(b) (i) Calculate the coefficient of elasticity of supply when

price increases from RM1.50 to RM1.55. Comment on the

elasticity value.

(2 marks)

(ii) Explain one (1) factor that determines the price

elasticity of supply for sugar.

(1 mark)

34
 (c) Due to tsunami disaster, the production of sugar has fallen by

50kg per week at each price level. Plot the new curve on the

same diagram in part (a). Determine the new equilibrium market

price and quantity of sugar.

(1½ marks)

(d) Suppose the government has intervened in the market and set a

price of RM1.40. Name the type of pricing implemented and give

one effect of such pricing policy?

(1½ marks)

(e) If the price of sugar increases from RM1.35 to RM1.40, the

demand for good H decreases from 80kg to 65kg. Calculate the

value of cross elasticity of demand between the two goods and

state their relationship.

(2 marks)

(Total: 10 Marks)

11. (a) Using diagrams, explain the difference between floor price

(minimum price) and ceiling price (maximum price).

(12 marks)

(b) Explain price control from Islamic perspective.

(8 marks)

(Total: 20 marks)

35
12. (a) Explain the concept of income elasticity of demand.

(3 marks)

(b) Why does the income elasticity of demand for food tend to be

lower compared to luxury good?

(3 marks)

(c) Using a diagram, explain the effects of tax on a product with an

inelastic demand and elastic supply.

(4 marks)

(Total: 10 marks)

36
 TOPIC 6

SHORT RUN PRODUCTION THEORY

1. The following table shows a production schedule of a firm:

Number of Total Product Marginal Product Average Product

Workers (TP) (units) (MP) (units) (AP) (units)

0 0

1 40

2 90

3 126

4 150

5 165

6 180

Based on the above schedule, answer the following questions:

(a) Fill in the empty columns for marginal product (MP) and average

product (AP).

(4 marks)

(b) At what number of workers does diminishing returns starts to

take place?

(2 marks)

37
 (c) In one diagram (without scale), draw total product (TP),

marginal product (MP) and average product (AP) curves.

(3 marks)

(d) At which number of workers is the average product (AP)

maximum?

(1 mark)

(Total: 10 marks)

2. From the table below, answer the following questions:

Number of Workers Total Product (TP) Marginal Product (MP)

(units) (units)

0 0

1 40

2 90

3 126

4 150

5 165

6 174

7 168

(a) Diminishing returns sets in with the addition of how many

workers?

(½ marks)

38
(b) What is the marginal product (MP) of the third worker?

(1 mark)

(c) How many workers would be hired so that total product (TP) is

at its maximum level?

(½ marks)

(d) Sketch (without scale) the total product (TP), average product

(AP) and marginal product (MP) curves. Indicate the three

stages of production.

(4 marks)

(e) State the relationship between marginal product (MP) and

average product (AP).

(2 marks)

(Total: 8 marks)

39
3. From the data given, answer the following questions:

Land Worker Total Average Marginal

Product Product Product

100 0 0 – –

100 1 40

100 2 45

100 3 36

100 4 24

100 5 33

100 6 174

100 7 –6

(a) Complete the above table.

(3 marks)

(b) Sketch the total product, average product and marginal product

in the same diagram. Indicate the stages of production.

(4 marks)

(c) How many workers are hired when total product is maximized?

(1 mark)

(d) Diminishing return sets in with the addition of how many

workers?

(1 mark)

40
 (e) At what stage of production will a rational producer choose to

produce?

(1 mark)

(Total: 10 marks)

4. Based on the information given below:

Labor (units) Total Product Marginal Product Average Product

(kg per day) of Labor (MPL) of Labor (APL)

0 0 – –

1 100 100

2 250 150

3 350 100

4 400 50

5 420 20

6 420 0

(a) Complete the above table.

(2 marks)

(b) At what number of workers will the law of diminishing marginal

return set in? How do you identify it?

(2 marks)

41
 (c) Is the law of diminishing returns a short run or long run

phenomenon?

(1 mark)

(d) Plot the MPL and APL on a graph paper and determine the level

off labor and output where the MPL intersects the APL?

(5 marks)

(Total: 10 marks)

5. The table below shows the relationship between total product of good

X and the number of workers employed:

Land 50 50 50 50 50 50 50 50 50 50

Capital 10 10 10 10 10 10 10 10 10 10

Labor 0 1 2 3 4 5 6 7 8 9

Total

Product

Average

Product

Marginal – 10 16 15 11 8 5 2 0 –4

Product

(a) Calculate the total product and the average product.

(3 marks)

42
 (b) Sketch a diagram to show the total product, average product

and marginal product curves and indicate the three (3) stages

of production.

(4 marks)

(c) Beyond what number of workers do diminishing returns set in?

(1 mark)

(d) For a rational producer, which stage will he choose? Why?

(2 marks)

(Total: 10 marks)

6. From the data given, answer the following questions:

Land Worker Total Average Marginal

Product Product Product

100 0 0 – –

100 1 40

100 2 45

100 3 36

100 4 24

100 5 33

100 6 174

100 7 –6

43
 (a) Complete the above table.

(3 marks)

(b) Sketch the total product, average product and marginal product

in the same diagram. Indicate the stages of production.

(4 marks)

(c) How many workers are hired when total product is maximized?

(1 mark)

(d) Diminishing return sets in with the addition of how many

workers?

(1 mark)

(e) At what stage of production will a rational producer choose to

produce?

(1 mark)

(Total: 10 marks)

7. Mardi Berhad, a fruit producer has the following production function.

Answer the questions based on the table given:

44
Land (acre) Number of Fruit Total Number of

Pickers Mangoes Picked

5 10 1800

5 20 2400

5 30 3100

5 40 4200

5 50 5500

5 60 6300

5 70 7000

5 80 6300

5 90 6000

(a) Is Mardi Berhad operating in the short run? Give a reason for

your answer.

(2 marks)

(b) Calculate the values of average and marginal product of the

mangoes picked.

(4 marks)

(c) At what number of picker does the total product start to

diminish?

(1 mark)

45
 (d) At what number of picker does the marginal product begin to

diminish?

(1 mark)

(e) At what number of picker does the marginal product becomes

negative?

(1 mark)

(f) Name the law that governs the production of the firm above.

(1 mark)

(Total: 10 marks)

8. The law of diminishing marginal returns applies to the short run

period. Explain this law by using a diagram.

(10 marks)

(Total: 10 marks)

46
 TOPIC 7

COST OF PRODUCTION

1. Answer the following questions based on the given total variable cost

(TVC) schedule and a total fixed cost (TFC) of RM12:

Quantity Total Total Average Average Average Marginal

Variable Cost Fixed Variable Cost Cost

Cost (TC) Cost Cost (AC) (MC)

(TVC) (RM) (AFC) (AVC) (RM) (RM)

(RM) (RM) (RM)

0 0

1 6

2 8

3 9

4 10

5 14

6 21

(a) Complete the above table.

(5 marks)

(b) In one diagram, sketch the average variable costs (AVC),

average cost (AC) and marginal cost (MC) curves (without scale).

(1 ½ marks)

47
 (c) What is the relationship between average variable costs (AVC),

average cost (AC) and marginal cost (MC) curves?

(1 ½ marks)

(Total: 8 marks)

2. Given:

Quantity Fixed Variable Total Cost Average Average

Costs (FC) Cost (VC) (TC) (RM) Variable Cost (AC)

(RM) (RM) Cost (RM)

(AVC)

(RM)

0 40

1 40 5

2 40 50

3 40 20

4 40 75

(a) Complete the table.

(3 marks)

(b) Is the firm operating in the short run or long run? Give your

reason.

(2 marks)

48
 (c) State the law that causes the short run average cost (SRAC)

curve to be ‘U’ shaped.

(1 mark)

(Total: 6 marks)

3. Based on the data below, answer the following questions:

Output Total Average Average Total Average Marginal

Variable Fixed Variable Cost Cost Cost

Cost Cost Cost

0 0 100

1 50

2 42

3 36

4 32

5 30

6 30

7 31

8 33

(a) Fill in the blank columns for every level of output.

(5 marks)

(b) In what period is this firm operating? Give your reason.

(2 marks)

49
 (c) Draw a diagram (without scale) to show the average cost,

average fixed cost average variable cost and marginal cost

curves.

(3 marks)

(Total: 10 marks)

4. Table below shows the short run costs for a firm, Desaputra Company:

Output TFC TVC TC AFC AVC AC MC

0 200 – – – –

1 40

2 44

3 330

4 50 90

5 37

Given:

TFC Total Fixed Cost TVC Total Variable Cost

TC Total Cost AFC Average Fixed Cost

AVC Average Variable Cost AC Average Cost

MC Marginal Cost

Copy the table and complete each of the columns.

(10 marks)

(Total: 10 marks)

50
5. Answer the next questions base on the following cost data:

Output (unit) Total Cost (RM)

0 24

1 33

2 41

3 48

4 54

5 61

6 69

You are required to calculate:

(a) (i) Total variable cost of producing 5 units of output.

(2 marks)

(ii) Average cost of producing 3 units of output.

(2 marks)

(iii) Average fixed cost of producing 3 units of output.

(2 marks)

(iv) Marginal cost of producing the sixth unit of output.

(2 marks)

51
 (b) Explain the following concepts:

(i) Explicit cost.

(ii) Implicit cost.

(2 marks)

(Total: 10 marks)

6. (a) What is the shape of long run average cost (LRAC) curves?

Sketch a LRAC curve in a well labeled diagram.

(2 marks)

(b) Explain the factors, which could explain the shape of LRAC

curve.

(8 marks)

(Total: 10 marks)

52
 TOPIC 8

MARKET STRUCTURES

1. The table below shows the production costs and revenues to a firm:

Output Total Cost Total Marginal Marginal

(TC) Revenue (TR) Cost (MC) Revenue

(RM) (RM) (RM) (MR) (RM)

0 24 –

1 33 6

2 41 12

3 48 18

4 54 24

5 61 30

6 69 36

Based on the table above, answer the following questions:

(a) Complete the table.

(3 marks)

(b) Calculate the total variable cost (TVC) for the third and fourth

output level.

(1 mark)

53
 (c) What is the total fixed cost (TFC)?

(1 mark)

(d) What is the profit – maximizing output level of this firm?

(1 mark)

(e) Sketch (without scale) a diagram to show an equilibrium position

for this firm.

(2 marks)

(Total: 8 marks)

2. The table below shows the average cost (AC) for a purely competitive

firm. The average revenue (AR) is constant at RM5 per unit and the

firm’s total fixed cost (TFC) is RM4:

Output Total Average Cost Total Cost Marginal

(units) Revenue (TR) (AC) (TC) Cost (MC)

1 8

2 5.50

3 4

4 3.50

5 3.80

6 4.50

7 6

54
 (a) Fill in the values for total revenue (TR), total cost (TC) and

marginal cost (MC) in the columns provided.

(3 marks)

(b) Determine the profit maximizing output.

(1 mark)

(c) Show the equilibrium of the firm in a diagram (sketch without

scale).

(2 marks)

(d) If average revenue (AR) falls to RM3 per unit, calculate the

firm’s new profit or loss at equilibrium.

(2 marks)

(e) Based on your answer in part (d), should the firm continue or

stop production? Why?

(2 marks)

(Total: 10 marks)

3. Answer the next three (3) questions based on the demand and cost

schedules for a monopolistically competitive firm given in the table

below:

55
 Price (RM) Quantity Demanded (units) Total Cost (TC)

20 1 10

18 2 20

16 3 29

14 4 36

12 5 40

10 6 42

(a) At what output level would the firm produce to maximize

profits?

(2 Marks)

(b) What will be the economic profit or loss for this firm at the

profit maximizing level of output?

(2 marks)

(c) Calculate the economic profit if the quantity demanded is 4

units.

(2 marks)

(d) By using a diagram (sketch without scale), show the long run

equilibrium for the monopolistically competitive firm.

(4 marks)

(Total: 10 marks)

56
4. The following figure shows a profit maximizing firm in a

monopolistically competitive market:

Price MC
(RM)
AC
MR
F L

E K
J R
C S
B I

H
A D

0 G M N
Quantity
A

(a) How much output will be produced by this firm?

(1 mark)

(b) At this output level, refer to question (a), what will be the

price?

(1 mark)

(c) What type of profit does this firm experience at this output

level? Identify the profit area.

(2 marks)

57
 (d) Would you consider this to be a short run equilibrium or long

run equilibrium?

(3 marks)

(e) Draw a diagram to show the firm’s long run equilibrium. Label

the output level, price level and the type of profit earned.

(3 marks)

(Total: 10 marks)

5. Answer the following questions based on the diagram below:

Price of X
MC AC

30

22

15
10

5
AR

0 10 15 18
Quantity of X
MR

(a) What market structure is this firm operating?

(1 mark)

58
 (b) What is the equilibrium output and price of this firm?

(1 mark)

(c) State two (2) assumptions of this model.

(2 marks)

(d) Calculate the amount of profit or loss the firm is making at this

equilibrium output.

(2 marks)

(e) What type of profit is earned by this firm? Why?

(2 marks)

(f) State two (2) characteristics of this market structure.

(2 marks)

(Total: 10 marks)

6. The following graph shows the short run equilibrium position of

Swastica Company:

59
 Price (RM)
A

18
15
10

0 10 12 20
Quantity
(unit)

(a) Label curves A, B, C and D.

(2 marks)

(b) What is the equilibrium price and level of output?

(2 marks)

(c) In which type of market structure does Swastica Company

operate?

(1 mark)

(d) What is the type of profit earned by the firm at equilibrium?

Calculate the profit earned by the firm.

(3 marks)

60
 (e) Give two (2) examples of Malaysian firms that operate in this

type of market structure.

(2 marks)

(Total: 10 marks)

7. The diagram below shows the total revenue and total cost of a firm.

Based on the diagram answer the following questions:

Total Cost
Price (RM)
Total Revenue

720

400

200

0 400
200 360 Quantity of
Outputs (units)

(a) What is the amount of the firm’s total fixed cost (TFC)?

(1 mark)

(b) How much is the profit or loss if the firm decides not to

produce any output?

(2 marks)

61
 (c) Calculate the price per unit of output.

(1 mark)

(d) How much is the firm’s average variable cost (AVC) at 400 units

output level?

(2 marks)

(e) Suppose the equilibrium output is 360 units, what type of profit

is the firm making?

(2 marks)

(f) Is the firm operating in perfect or imperfect competition? Give

a reason for your answer.

(2 marks)

(Total: 10 marks)

8. The table below shows the long run data for a company known as

Desaria Berhad:

Price (RM) Quantity (units) Total Cost (RM)

12 0 10

11 1 17

10 2 18

9 3 21

8 4 30

7 5 48

62
 (a) Using total revenue (TR) and total cost (TC) approach,

determine the profit maximizing level of output.

(2 marks)

(b) Calculate the firm’s marginal revenue (MR), marginal cost (MC)

and average cost (AC).

(3 marks)

(c) Sketch (without scale) MR, MC, AC and the demand curves.

(2 marks)

(d) Shade the area of profit or loss on the plotted diagram.

(1 mark)

(e) Is the firm a monopoly? Justify your answer.

(2 marks)

(Total: 10 marks)

9. The tables below illustrate the production cost and demand schedule

of a firm producing canned pineapple:

Cans of Pineapple 1 2 3 4 5 6 7

Produced

Total Cost (RM) 4 7 9 12 16 24 35

63
Number of Cans 1 2 3 4 5 6 7

Demanded

Price per Can 6.25 6.00 5.75 5.50 5.25 5.00 4.75

(RM)

(a) Calculate the firm’s total revenue (TR) and total profit at each

level of production.

(3 marks)

(b) What would be the profit maximizing level of output and price

for the firm?

(2 marks)

(c) Calculate the marginal revenue and marginal cost respectively.

(3 marks)

(d) At the profit maximizing level output, state the amount of

profit made by the firm.

(1 mark)

(e) Is the above firm a monopolist? Explain.

(1 mark)

(Total: 10 marks)

64
10. (a) Briefly explain two (2) characteristics, each for a monopolistic

competition market and an oligopoly market.

(4 marks)

(b) Explain with the aid of a diagram why a monopolist is inefficient

compared to a perfectly competitive firm?

(6 marks)

(Total: 10 marks)

11. Compare a monopoly with a monopolistic competition in terms of the

following:

(a) Number of sellers

(2 marks)

(b) Type of product produced

(2 marks)

(c) Entry and exit

(2 marks)

(d) Type of profit in the long run

(2 marks)

(e) Shape of demand curve

(2 marks)

(Total: 10 marks)

65
12. (a) In which market structure would price discrimination be

successful?

(1 mark)

(b) Explain the three (3) different types of price discrimination.

(9 marks)

(Total: 10 marks)

66