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The Islamic University Faculty Of Commerce Dep't of Economics Micro Economic Date:13/1/2007 Time:11.30 - 13.30 Name: ------------------------------------------------------ St/No:----------------------- Q 1: Multiple Choices 15 Marks 1- A "production function" is the name for: A) a working part. D) all of the above. B) a relationship between inputs and output. E) none of the above. C) technological change. 2- At a consumer's equilibrium demand choices for goods 1 and 2: A) MU1 = MU2 D) P1 = P2 B) MU1/Q1 = MU2/Q2 E) none of the above. C) MU1/P1 = MU2/P2 3- A change in which of the following should not affect the demand for hot coffee? A) The price of coffee. D) The weather. B) The price of tea. E) All the above affect the demand for coffee. C) Consumer incomes 4- To maximize profits or minimize losses (if the firm produces), a firm must be sure it is producing at an output where: A) total revenue is greater than average cost. B) total revenue is equal to average cost. C) marginal revenue is greater than marginal cost. D) marginal revenue is equal to marginal cost. E) none of the above is correct. Total Utility Units Good X Good Y 1 120 90 2 216 160 3 288 220 4 336 270 5 360 305 5- Refer to the above Table. If good X costs $6 per unit and good Y costs $5 per unit, at what quantities of X and Y is utility maximized if the budget is $33? A) X = 2, Y = 3 D) X = 3, Y = 3 B) X = 4, Y = 5 E) None of the above C) X = 3, Y = 4 6- Refer to Table 5-1. Suppose X costs $8 per unit and Y costs $5 per unit. What quantities of X and Y will the consumer buy if she has $31 to spend? A) X = 3, Y = 4 D) X = 1, Y = 2 B) X = 4, Y = 5 E) None of the above C) X = 2, Y = 3 7- The quantity of a good which a person will purchase will not depend on which one of the following items? A) The price of the good. D) His or her income. B) His or her tastes. E) The elasticity of supply. C) The prices of substitute goods. 1 8- If demand is price elastic within the relevant price range, then total revenue: A) will rise with a fall in price. B) will fall with a fall in price. C) will remain constant with a fall in price. D) may either rise or fall with a fall in price. E) will rise if price is greater than $1, but fall if price is less than $1. 9- Suppose the absolute value of the slope of a straight-line demand curve is 1. The price elasticity at any point along this demand curve is: A) equal to 1. D) infinite. B) greater than 1, but less than infinite. E) none of the above are necessarily true. C) less than 1. 10- The quantity of good X demanded by an individual may depend upon: A) the individual's income. D) all of the above. B) the price of X. E) answers a and b, only. C) the price of some other goods. 11- When the demand curve shifts to the right: A) equilibrium price increases. D) a and c. B) equilibrium price decreases. E) b and c. C) equilibrium quantity increases 12- Upward-sloping supply curves are the result of: A) increasing returns to scale. D) changes in technology. B) increasing costs of labor. E) none of the above C) changes in government policies. 13- Suppose that at the current market price, the amount which producers wish to produce and sell exceeds the amount that consumers wish to purchase. This price: A) lies above the market clearing price. D) will induce a shift in the demand schedule. B) lies below the market clearing price. E) none of the above. C) is impossible 14- The short run is a period of time so short that: A) output cannot be varied. D) all inputs are variable. B) at least one input is fixed. E) none of the above. C) all inputs are fixed. 15- Marginal cost is the: A) total cost divided by the number of units produced. B) fixed cost divided by the number of units produced C) extra fixed cost of producing an additional unit of output. D) extra average cost of producing an additional unit of output. E) extra cost of producing an additional unit of output. 16- Which of the following is true at the quantity of output where average cost has reached its minimum level? A) AVC = FC. B) MC = AVC. C) MC = AC. D) AC = AFC. E) Output price = AVC. 2 17- Which of the following is typically not U-shaped? A) Average cost D) Marginal cost B) Average variable cost E) All of the above are usually U-shaped. C) Average fixed cost 18- The intersection of the marginal cost curve and the average cost curve characterizes the point of: A) maximum profit. D) minimum opportunity cost. B) minimum average cost. E) minimum profit. C) minimum marginal cost. 19- Oligopoly is a market situation with: A) the consumers' best interest at heart. D) only a few competing sellers. B) no competition. E) only a few competing buyers. C) a single buyer. 20- In long-run equilibrium, a firm in a perfectly competitive industry will produce at the point where: A) marginal cost equals average total cost. D) its opportunity cost is lowest. B) total revenue is maximized. E)price equals average fixed cost. C) marginal cost equals average variable cost. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Q 2: True and False 15 Marks 1- If you can now buy a good at a reduced price, your "consumer surplus" must increase. 2- As you increase the consumption of X, total and marginal utility tend to increase. 3- If A and B are substitutes, then an increase in the price of A will tend to result in an increase in the demand for B. 4- Marginal utility tends to rise as the level of consumption rises. 5- Consumer surplus measurement is a key element in cost-benefit analysis. 6- Models are descriptions of the relationship between two or more variables. 7- Capital goods are goods used to produce other goods and services. 8- A time series graph shows how a single variable changes over time. 9- Households are the consuming units in an economy/ 10- Inferior Goods are goods for which demand falls when income rises. 11- A price floor is a maximum price that sellers may charge for a good. 12- The value of demand elasticity is not always negative. 13- When demand does not respond at all to a change in price, demand is perfectly elastic. 14- Demand is elastic in the upper range and inelastic in the lower range of the line. 3 15- The budget line shifts inward in a pivot way when you get less income. 16- If production displays increasing returns to scale, then it cannot display diminishing returns for all of its inputs. 17- If the marginal product of an input is increasing, then average product must also be increasing. 18- The marginal cost curve can cut the average variable cost curve from below only at its minimum. 19- MC is the same whether it is computed from TVC or from TC. 20- Average fixed cost intersects average variable cost at the minimum level of average variable cost. 21- Least-cost relationships tell the firm how much output it should finally produce. 22- The tangency of an equal-product curve and an equal-cost line determines one point of a firm's total least-cost curve. 23- When its variable costs are less than total revenue, a firm should shut down. 24- A perfect competitor is defined as one who can earn economic profits, even in the long run. 25- Profit maximization will occur where the elasticity of demand is unitary. 26- An individual perfect competitor faces a horizontal demand curve. 27- An imperfect competitor is distinguished by, among other things, having some control over price. 28- Differentiation of the product is necessary in an oligopoly. 29- Technological change, have a powerful influence on factor demands 30- in the long run, no monopoly is completely secure from attack by competitors. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Q 3: Define 8 points from the following terms. 1- Price- takers. 2- Scarcity. 3- Productive Efficiency. 4 20 marks 4- Economic Cost. 5- Graphs. 6- Elasticity of Demand. 7- The Low of Diminishing Returns. 8- Marginal Revenue. 9- Shut-Down point. 10- Monopoly. 5 Q 4: 1: State the characteristics of Isoquant curves. 2: When MU1/P1 = MU2/P2, the indifference curves and budget line are necessarily tangent, Draw the graph. 6 3- Explain the graph. 7