Microeconomics ECO101 Final Exam Paper

Instructions

Question One (25 points)

1. Explain the effect of the increase of fish meat prices on the equilibrium price and quantity of the chicken meat.               (6 points)
2. What will happen to equilibrium price and quantity of clothes if the wage paid to cloth workers increases?                              (6 points)
3. Explain the impact of the change in consumer’s income on the demand of goods and services.                                                       

(6points)

• Explain the difference between movement along the demand curve and shifting in the demand curve.                                   (7 points)

Question Two (25 points)

Based on the following table, answer the questions below:

Output	TC	TFC	TVC	ATC	AFC	AVC	MC
0	$200
1							$60
2			$120
3	$420
4				$160
5						$120

1. Complete the table below based on the relationships among the various cost functions.                                                        (18 points)
2. If the marginal revenue equals $400, what is the level of production that maximize the profits of producer? Explain your answer.                                                                        (7 points)

Question Three (25 points)

1. Based on the information provided in the table below:
   1. Describe the impact of the cost behavior on economies of scale, constant returns to scale, and diseconomies of scale in each firm? Calculate the average cost for each firm to justify your answer.                                                                      (9 points)
   1. what is the value of fixed cost in each firm?                (6 points)

Output	TC firm 1	TC Firm 2	TC Firm 3
0	$2400	$6000	$40
1	$3000	$14000	$100
2	$5600	$30000	$200
3	$7800	$48000	$300
4	$9600	$72000	$1000
5	$11000	$100000	$2000
6	$12000	$144000	$4800

• “When the total cost of production decrease, we can say that the firm faces positive return to scale”.  Discuss this statement.                                                                                    (10 points)

Question Four (25 points)

1. What should a firm do if it realizes that its marginal revenue is more than its marginal cost?                                                  (8 points)
2. What should a firm do if it realizes that its average cost is more than its average revenue in the short run?                                 (8 points)
3. Explain the difference between economic profits and accounting     profits. Support your answer with example.                           (9 points)

Best wishes