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CONFIDEN TIAL BM/APR 2009/ECO162/104

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

COURSE CODE

EXAMINATION

TIME

MICROECONOMICS

ECO162/104

APRIL 2009

3 HOURS

INSTRUCTIONS TO CANDIDATES

1 . This question paper consists of three (3) parts : PART A (20 Questions)

PART B (4 Questions)

PART C (5 Questions)

2. Answer ALL questions from PART A and PART B and two (2) questions from PART C.

i) Answ er PART A in the Objective Answ er Sheet

ii) Answ er PART B and PART C in the Answer B ooklet. Start each answer on a new

page.

3. Do not bring any material into the examination room unless permission is given by the

invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answ er Booklet - provided by the Faculty

iii) an Objec tive Answ er Sheet - provide d by the Faculty

iv) A graph paper - provided by the Faculty

DO NOT TURNT ISP GEUNTILYOU RE TOLD TO DO SO

This examination paper consists of printed pa ges

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PART A

1 .

The fundam ental problem of economics is

A. achieving the best rate of economic growth.

B. stabilizing the price level in the econo my.

C. allocating scarce resources relative to the society's unlimited mate rial wants.

D. establishing an equitable taxation system.

2. A point inside the production possibility curve may indicate

A. all produc tive resources are efficiently utilized.

B. inefficient allocation of productive resources.

C. full employmen t of scarce resources.

D. technological efficiency.

3. Conventional and Islamic econom ic system s are similar in such a way that

A. both systems are concerned with the welfare of the society.

B. both systems will ensure efficient combination of inputs at minimum costs.

C. both systems are moderate and unive rsal.

D. both systems deny people of their freedom to choose.

4.

If the price of a good increases, the dem and curve for the good's close substitute will

A. shift to the right.

B. shift to the left.

C. remain unchanged.

D. cannot be determined.

5. If the cross price elasticity of deman d between good S and T is 2, then a 2%

increase in the price of good S will result in

A. a1 increase in quantity of good T dema nded.

B. a 20 % increase in quantity of good T deman ded.

C. a 1 0% increase in quantity of good T dem anded .

D. a 4 % increase in quantity of good T dem anded .

6. The supply of mutton and wool may be interrelated because both are

A. complementary.

B. supplementary.

C. jointly dema nded.

D. jointly supplied.

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7. Firm A is ope rating in a perfectly com petitive ma rket, its ma rginal revenue is

A. equal to zero.

B. equal to marginal cost at every level of output.

C. always less than price.

D. equal to average revenue and price.

ATC

O Q Q* Quantity

At output level Q*, the total variable cost is equal to area

A. RQKL

B. QPJK

C. OPJQ*

D. RPJL

9. The following are the essential features of a pure capitalism except

A. free enterprise.

B. price mec hanism.

C. public ownership of resources.

D. profit mo tivated.

10. If your income increases by 20 percent and the quantity dem ande d for a good has

decreased by 5 percent, the coefficient of the income elasticity of demand for the

good is

A.

B.

C.

D.

-0.5

+0.5

-0.25

+0.25

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1 1 .

A price-discriminating monopolist will not charge a higher price for a good if it

believes that the demand for the good is

A. elastic.

B. perfectly inelastic.

C. perfectly elastic.

D. inelastic.

1 2.

Wh ich of the following characteristics describe a non collusive oligopoly?

A. Price discrimination

B. Price wars

C. Mutual interdependent

D. Price leadership

1 3.

A firm is said to experience econom ies of scale in its production whe n

A. it expands production, its average total cost increases.

B. it has grown so large average total cost is constant as output expands.

C. it is opera ting at a scale whe re total fixed costs are not minim ized.

D. it has grown so large average total cost decreases as output expands.

1 4.

W hen a firm's total product is increasing in the short run, its marginal product

A. must be constant.

B. must be increasing.

C. must be decreasing.

D. must be negative.

15. An indifference curve explains

A. the maximum utility that can be achieved for different number of goods.

B. the maximum utility that can be achieved for a given budget.

C. the combination of two goods giving equal utility to a consum er.

D. the best number of consumption between the goods.

16.

The average total cost of producing computers in a factory is RM250 at the current

output level of 100 units per week. If fixed costs equal RM5,000

A. average fixed cost equals RM50.

B. total cost equals RM40,000 per week.

C. variable cost equals RM1 0,000 per week.

D. average variable cost equals RM4 00.

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17. For a profit-maximizing mono polistic comp etitionfirm, the price of its product is

A. always equal to marginal revenue.

B. always less than marginal revenue.

C. always greater than marginal revenue.

D. always equal to the average cost of production.

18. A perfectly com petitive firm will hire labour to maximize profit when

A. MRP = MP

B. MRP = W

C. MR = MP

D. AR = MR

19.

Wh en an indifference curve is tangent to the budget line, it means

A. consum ers are satisfied with the product.

B. consum ers have spent all their income but not maximizing total utility.

C. consum er have not spent all their income yet max imizing total utility.

D. consum er have spent all their income and maxim ized total utility.

20 . Derived dem and for labour depends on the

A. market supply of labour.

B. consum er dema nd for the final goods produced by labour.

C. firm's total revenue less econom ic profit.

D. cost of factors of production used in the product.

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CONFIDENTIAL 6 BM/APR 2009/ECO162/104

P A R T B

QUESTION 1

Ceiling price of petrol for next year capped at RM2.70

PUTRAJAYA: Consumers will not pay more than RM2.70 per liter for petrol next year

even if global prices of crude oil escalate. Domestic Trade and Consumer Affairs Minister

Datuk Sharir Sama d said the Governme nt decided on the ce iling price during last week's

Cabinet meeting.

He added that the Go vernment had also decided to continue with the floating mechanism

to determine fuel prices. Since the present floating system works fine, we have decided

to continue with it. Consumers will enjoy a 30 cent subsidy if the market price is RM1.90

per liter.

The pump price of petrol is now RM1.80 per liter while diesel is sold at RM1.70 per liter.

The retail prices of petrol and diesel have been gradually lowered from their highs of

RM2.70 and RM2.58 respectively in June.

Adapted from theStar 2 D ecember 2 8

a) Explain the meaning of ceiling price and state a reason for the governm ent to

implement it on petrol.

(3 marks)

b) Based on the information given in the article, illustrate diagram matically the ceiling

price.

(3 marks)

c) Explain two (2) disadvan tages of implementing a ceiling price on petrol.

(2 marks)

d) How would one consider the relationship between the two goods, petrol and car?

Justify your answer.

(2 marks)

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QUESTION 3

a) A firm operates in a perfectly com petitive labour market produce a product wh ich it

charges RM 2.00.

Table 2: Firm s weekly production

Number

of

workers

per week

0

1

2

3

4

5

Total

output per

week

0

12

21

36

Marginal

physical

product of

labour

(MPL)

0

12

Total

revenue

(TR)

0

54

Marginal

revenue

product of

labour

(MRPL)

0

10

i) Com plete the blanks for each column.

(2 marks)

ii) Assu me the wage rate is RM1 2, how many workers would the firm hire to

maximize profits?

(1 mark)

iii) Ske tch a diagram to show the equilibrium position of thisfirm.

(2 marks)

b) W ith the aid of diagram s, show the effects of the following on the price of palm oil.

i) A scientific research found that soya bean oil has lower choles terol.

(2 marks)

ii) The wo rld price of rubber has increased substantially for the past few mo nths.

(2 marks)

iii) An increase in the number of countries producing palm oil.

(1 mark)

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QUESTION 4

The figure below shows the short run profit maximizing position of a monopolistic

competitive firm.

Costs & Revenue

(RM)

0 33 44 55 Quantity

a) Label the curves A, B and C. (1.5 mark)

b) The dem and curve for a monop olistic firm is relatively elastic. Wh y?

(2 marks)

c) State the profit maximizing output and price. Calculate the total revenue and total

cost at that output.

(3 marks)

d) Calculate the amount of profit or loss made by the firm.

(1.5 marks)

e) Sketch a diagram to show the long-run equilibrium of the

firm.

(2 marks)

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P A R T C

QUESTION 1

a) Explain the concepts of scarcity, choice and opportunity cost using a production

possibilities frontier.

(10 marks)

b) Discuss the factors that determine the price elasticity of supply of a good .

(10 m arks)

QUESTION 2

a) Differentiate between an implicit cost and explicit cost by giving exam ples.

(5 marks)

b) Wh y is economic profit always lower than accounting profit?

(3 marks)

c) Describe the relevant costs of producing a good borne by a produce r in the short run

period.

(12 marks)

QUESTION 3

a) The law of diminishing returns explains the short run production of a

firm.

Using a

relevant diagram, explain the law showing the different stages of production and the

most efficient stage a firm should p roduce.

(12 marks)

b) Define diseconomies of scale. Explain any three (3) sources of diseconomies of

scale.

(8 marks)

QUESTION 4

a) How is a monopoly firm different from a monopolistic firm?

(8 marks)

b) Using diagrams illustrate and explain how a perfect compe tition firm could only make

normal profit in the long run.

(12 marks)

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QUESTION 5

Explain briefly the following concepts:

a) dharuriyyah and tarafiyyah

b) kinked dem and curve

c) econom ic rent

d) hablumm inallah and habluminannas

(20 marks)

END OF QUESTION PAPER

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