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The 2^nd Assignment of Intermediate Microeconomics

i. Terminology explanation (5’*4=20’)

1. Marginal cost 

2. Economies of scale

3. Sunk cost

4. Fixed cost

ii. Short-answer questions (10*3=30’)

1. What are the characteristics of perfectly completive firms?

2. Compare economic profit and accounting profit.

3. Compare and explain at what conditions will a firm exit a market or shut down temporarily?

iii. Problem solving and applications (10+20=30’)

1. Draw the cost curves for a typical firm. For a given price, explain how the firm chooses the level of output that maximizes profit. At that level of output, show on your graph the firm’s total revenue and total costs. (10’)

2. The government raises taxes to provide a toll road bridge and streetlights in a country. explain how an economist would classify each of these provisions. (20’)

iv. Multiple choices （choose ONE answer for each question）（2’*10=20’）

1. Why might a firm continue in production in the short run even though the price of its product has fallen below its average total costs of production? （）

A. It anticipates a rise in variable costs.

B. It expects the fall in price to be temporary.

C. It has large fixed costs of production.

D. It has no control over the price of its product.

2. The diagram shows the average cost curves for a firm.

 

If a firm moved from point X to Y, what is most likely to happen to the productive efficiency and x-inefficiency of this firm? ( )

 

3. In the short run, a firm produces an extra unit of output. Which of the firm’s production costs will change?

A. fixed cost only

B. fixed cost and variable cost

C. variable cost only

D. variable cost and total cost

4. The table shows a firm’s total and marginal costs. What is the average fixed cost of producing 6 units? (  )

 

A $50   B $60    C $180    D $300

5. The diagram shows the cost and revenue curves of a monopoly. What is the firm’s objective if it produces output OX? (  )

 

A. to achieve normal profit

B. to maximise profit

C. to maximise total revenue

D. to minimise average cost

6. In the diagram, TC is a firm’s short-run total cost curve.

 

Which statement is correct? ( )

A. Average total cost is minimised at output OQ3.

B. Average variable cost is minimised at output OQ2.

C. Average variable cost is minimised at output OQ3.

D. Marginal cost is minimised at output OQ1.

7. When output increases in the short run, which statement is correct? ( )

A. Average fixed cost first falls and then, beyond some point, rises.

B. Average variable cost increases as soon as the law of diminishing marginal returns begins to operate.

C. The minimum point of the average total cost curve occurs at a greater level of output than the minimum point of the average variable cost curve.

D. When marginal cost reaches its minimum point, average variable cost must be greater than average fixed cost.

8. The diagram shows the demand curve for a firm’s product.

 

Which diagram depicts the shape of the firm’s corresponding total revenue (TR) curve?

 

9. A firm produced its goods at an average cost of $14. It then produces the same output at a lower average cost by different methods of production. The price remains above the marginal cost. In which ways is this firm now more efficient?

 

10. When there are positive externalities in consumption, what can be concluded about the output of the market?

A. Output must be above the allocative efficient level.

B. Output must be at the allocative efficient level.

C. Output must be below the allocative efficient level.

D. Output can be above or below the allocative efficient level.