Lecturer: Believe Michael Valuvalu
Module Name-Code and Qualification: Economics 1A (Micro) – PMIC5111, BLG1 & BAD1
(AQs_25) ADDITIONAL QUESTIONS: LU7 to LU10
Use the table below to answer questions 1 and 2.
Number of Output per Marginal Physical Price per unit of
workers month Product per month output (R)
0 0 0 5
1 200 200 5
2 320 120 5
3 400 80 5
4 460 A 5
1. Marginal revenue product for the third worker equals:
(a) R400
(b) R80
(c) R2 000
(d) R5
2. Which of the following statements correctly identifies what the letter A in the table
represents?
(a) A = 300 and shows the value of the output produced by the fourth worker.
(b) A = 115 and is the average output per worker.
(c) A = 60 and is the marginal revenue product of the fourth worker.
(d) A = 60 and indicates that diminishing marginal returns sets in when the fourth
worker is hired.
3. The following information is provided for AT Stationers for the month of January 2020:
Total Revenue = R1.1m
Total implicit costs = R420 000
Total explicit costs = R350 000
Total economic costs = R770 000
Which one of the following statements with regard to AT Stationers is correct?
(a) The economic profit is R330 000
(b) The accounting profit is R330 000
(c) The economic loss is R440 000
(d) The accounting profit is R680 000.
4. In economic theory, the short run is described as.........
(a) a time period of less than one year.
(b) the time period within which all factors of production are variable.
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(c) a period of time within which at least one factor of production is fixed.
(d) a time period of 6 months or less.
5. Which one of the following is not an assumption made to simplify the analysis of
production?
(a) Firms produce only one product
(b) Inputs are considered to be heterogeneous.
(c) Inputs can be used in infinitely divisible amounts.
(d) The prices of product and inputs are given.
6. Which one of the following statements regarding a production function is correct?
(a) The production function is the relationship between the quantity of inputs and the
maximum output that can be obtained from these input
(b) The production function remains constant even if the state of technology changes.
(c) The production function analyses the relationship between unit costs and output.
(d) There is an inverse relationship between the state of technology and the production
function.
7. A belt manufacturer employs 5 workers. The producer is able to increase the average
product (AP) of labour from 10 belts per hour to 13 belts per hour by hiring a 6th worker.
The marginal product of the sixth worker is...........
(a) 2 belts
(b) 13 belts
(c) 28 belts
8. If marginal product is declining while the amount of input is increasing and MP is positive,
then......
(a) total product will be decreasing.
(b) total product will be increasing at a decreasing rate.
(c) total product will be increasing at an increasing rate.
(d) total product will be staying constant.
9. An important fact regarding the marginal cost curve (MC) is that it......
(a) always lies above the AFC curve.
(b) it intersects the ATC, AVC and AFC curves at their minimum points.
(c) it intersects the ATC and AVC curves at their minimum points.
(d) it will not intersect the AVC.
10. Thato is able to produce 100 pizzas at an average total cost of R10 per pizza when the
average variable cost is R6 per pizza. Thato’s total fixed costs are.....
(a) R400
(b) R4
(c) R600
Use the information in the table below to answer question 11.
Information for XYZ Enterprises
2
Units produced Marginal cost (R)
0 125
1 120
2 114
3 108
4 115
5 125
6 138
11. The total cost when XYZ produces 3 units is........
(a) R324
(b) R467
(c) R108
(d) R233
12. A firm earns zero economic profit when:
(a) MC > AC
(b) MC = MR
(c) AC < AR
(d) AC = AR
13. If a firm in a perfectly competitive industry raises its price above market price then.....
(a) Sales will fall slightly.
(b) sales will stay the same.
(c) sales will drop to zero.
(d) it will increase profits, but only in the short run.
Use the following information to answer question 14:
In a perfectly competitive market for widgets, the market price is R15. Cost information for a firm
producing widgets in this market is given in the table below.
Quantity Total Fixed Cost Total Variable Cost
1 10 35
2 10 80
5 10 105
7 10 140
8 10 175
14. This firm should...........
(1) break even.
(2) shut down
(3) minimise losses by producing 1 widget.
(4) increase output.
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15. In a perfectly competitive market, the market price is R150. If the last unit of output that
the firm produced cost the firm R140, the firm would maximise profits if it were to.........
(a) expand output.
(b) decrease output
(c) increase the price of the product.
(d) reduce its fixed costs.
16. A monopolist chooses not to produce in the inelastic portion of the demand curve because
he/she would be able to.........
(a) increase total revenue by lowering the price.
(b) increase total revenue by raising the price.
(c) reduce total costs by raising production rates.
(d) reduce total costs by producing more.
Use the graph below, showing a firm operating in a monopolistically competitive market structure,
below to answer questions 17 and 18.
17. Assume that the above graph represents the performance of a monopolistically competitive
firm in the short run. The profit that this firm can make is.............
(a) R2800
(b) R1750
(c) R1400
(d) Zero economic profit.
18. Which one of the following statements relating to the above graph is incorrect?
(a) This firm can continue to make economic profit in the long run as entry into the
market is blocked.
(b) At an output level of 95, MR is less than AR.
(c) The marginal cost for a monopolist producing where MR=MC is R40.
(d) The firm will not produce where the AC is at a minimum.
19. If a monopoly market were to be replaced with a perfectly competitive market for the same
product and with the same cost structure, we would expect
(a) Prices to increase, output to decrease and efficiency to decrease.
(b) Prices to decrease, output to increase and efficiency to increase.
(c) Price to decrease, output to decrease and efficiency to decrease.
(d) Prices to remain unchanged, output to decrease and efficiency to increase.
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20. An individual’s labour supply curve is positively sloped when......
(a) the substitution effect of a wage increase is negative.
(b) the substitution effect is greater than the income effect.
(c) the income effect of a wage increase is negative.
(d) the substitution effect is less than the income effect.
21. Restricting entry into an occupation will _______________ supply into that occupation and
______________ wages.
(a) increase; increase
(b) increase; decrease
(c) decrease; increase.
(d) decrease; decrease
22. Which one of the following will NOT shift the market supply curve of labour, ceteris paribus?
(a) A change in the size of the population.
(b) A change in the participation rate of women in the labour market.
(c) A change in the wages of labourers.
(d) A change in migration.
LONGER QUESTIONS
1. Clearly describe the relationship that exists between average product, marginal product and
total product in the context of the short-run production function. (6)
2. The table below reflects the short-run costs of production of a small firm. Complete the table
by writing out the letters A to F in your answer book along with the correctly calculated cost
applicable to each letter. Round your answer off to two decimal places. (6)
Average
Output Total Cost Marginal Cost Average Fixed Variable Cost Average Total
(TC) (MC) Cost (AFC) (AVC) Cost (AC)
0 650.00 - - - -
1 685.00 A 650.00 B 685.00
2 710.00 25.00 C 30 D
3 E 20.00 216.67 F 243.33
3. Clearly distinguish between economic profit and accounting profit by providing a detailed
explanation of the difference between economic thinking and accounting thinking regarding
the determination of profit. (4)
4. Define the law of diminishing returns.
5. Answer the following questions with regards to “price discrimination”.
• Define the term “price discrimination”. (1)
• Describe the three different categories of price discrimination. (9)
(Hint: Use an example to illustrate each category of price discrimination.)
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6. List the three main responsibilities of the Competition Commission. (6)
7. “Under perfect competition, all firms make normal profits in the long run”.
Explain, without the aid of a diagram, the adjustment to long-run equilibrium of the firm and
industry under perfect competition, when some firms initially makes economic losses. (8)
8. Use the following diagram to answer questions 8.1 to 8.5
8.1 What is the firm’s profit-maximising daily output? (1)
8.2 What is the total daily revenue of the profit-maximising firm? (1)
8.3 What is the marginal revenue of the firm if it decides to produce 55 units per day?(1)
8.4 Calculate the profit that this firm is making if it operates at the profit-maximising
position, ceteris paribus. (2)
8.5 At what price would the firm be at shut-down point? (1)
9. Identify seven ways in which the labour market differs from the goods market. (7)
10. Explain with the aid of a diagram, the substitution effect and the income effect in the context
of the individual supply of labour. (7)
11. Explain what is meant by the term “natural monopoly”. (2)
12. It is said that trade unions act as a countervailing force in the labour market, with the aim of
promoting worker’s interests through collective bargaining. Briefly describe what is meant by
a “countervailing force” and list any four issues which may be addressed in the process of
collective bargaining. (5)
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13. Graphically illustrate the effect on the equilibrium wage rate and equilibrium level of
employment in a labour market, when new graduates enter this labour market, ceteris
paribus. (7)
14. Describe three ways in which a trade union can attempt to achieve higher wages for its
members. In each case, explain the impact on the wage rate as well as the level of
employment. (9)
(Note: You do not have to draw the graphs.)
15. The table below indicates the position of a maize farmer. Both the maize market
and the labour market in the maize industry are perfectly competitive. The wage
rate is R1 500 per week. Complete the table by calculating the marginal revenue
product of labour at points A and B. (4)
(Note: You do not need to redraw the table.)
Number of Total Physical Marginal Price Per ton of Marginal Revenue
Workers Product (TPP) Physical Maize (R) Product (MRP)
Product
4 50 50 30 A
5 90 40 30 B
Based on the information in the table how many workers should be employed by this firm?
