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ECON 101 Practice Questions Set 2 (2022-23)

This document provides the instructions for Assignment 2 of the ECON 101 course. It includes 10 questions covering various microeconomics topics such as market equilibrium, production costs, firm behavior under different market structures, and characteristics of monopolistic competition and oligopoly. Students are asked to show their solutions on paper and include their index number and group. The questions range from graphical analysis and calculations to explanations of concepts.

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62 views

ECON 101 Practice Questions Set 2 (2022-23)

This document provides the instructions for Assignment 2 of the ECON 101 course. It includes 10 questions covering various microeconomics topics such as market equilibrium, production costs, firm behavior under different market structures, and characteristics of monopolistic competition and oligopoly. Students are asked to show their solutions on paper and include their index number and group. The questions range from graphical analysis and calculations to explanations of concepts.

Uploaded by

Coming 30s
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ECON 101: Introduction to Economics I

Assignment 2 | 29.02.2022
Submission deadline: Wednesday April 5, 2023, at 5pm
Instructions: Answer the following questions to the best of your ability. The solutions should
be presented on foolscap sheets. Indicate on the sheet your index number and your group.

1. The market demand for milk is QD = 16 - 2P, while the market supply is QS = -2 + P.
(a) Find the equilibrium quantity and price in the market for milk. Show your solution
graphically.
(b) Identify in the graph, the areas showing the producer and consumer surplus when
the market is in equilibrium.
(c) What are the values of the consumer surplus, producer surplus and total benefit?

2. Explain why it might make sense for a firm to produce goods that it can only sell at a
loss. Can it keep on doing this forever?

3. The following table gives the short-run total costs for various levels of output of a
small bakery in Accra:
Q TC
0 0
1 300
2 400
3 465
4 495
5 540
6 600
7 700
(a) For each level of output, find short-run TFC, TVC, AFC, AVC, and MC.
(b) Sketch the graphs for TFC, TVC, AFC, AVC and MC
(c) Why is the ATC U-shaped?

4. Compare perfect competition and monopoly on the basis of:


(a) the number of buyers and sellers.
(b) the market supply curve
(c) the nature of the good sold in the market.

5. At its best possible output level, a firm has total revenue of ₵3,500 per day and total
cost of ₵7,000 per day. What should this firm do in the short run if:
(a) the firm has total fixed costs of ₵3,000 per day?
(b) the firm has total variable costs of ₵3,000 per day?
6. Suppose that a perfectly competitive firm has the following total variable costs
(TVC):
Quantity: 0 1 2 3 4 5 6
TVC: ₵0 ₵6 ₵11 ₵15 ₵18 ₵22 ₵28

It also has total fixed costs (TFC) of ₵6. If the market price is ₵5 per unit:
(a) Find the firm’s profit-maximizing quantity using the marginal revenue and
marginal cost approach.
(b) Check your results by re-solving the problem using the total revenue and total
cost approach. Is the firm earning a positive profit, suffering a loss, or
breaking even?

7. Draw demand, MR, and ATC curves that show a monopoly that is just breaking even
in the short run.

8. What are the arguments for and against advertising in monopolistic competition?

9. What are the characteristics of an oligopoly market and how do they differ from
monopolistic competitive market?

10. Graphically illustrate a monopolistic competitive firm with losses in the short run.

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