Economics Oct/Nov 2022 (13/09/22)

The diagram shows a monopolistically competitive firm. Which point represents allocative efficiency?

• A
• B
• C
• D

What is an argument against government intervention when there is market failure?

• Government intervention could increase positive externalities.
• Government intervention could increase the availability of merit goods.
• Government intervention could lead to a less efficient outcome.
• Government intervention could lead to a less efficient outcome.

A government is choosing between four routes for a new road. The table provides details of the costs and benefits associated with each route. The government wants to get the highest return for taxpayers in terms of the social benefit relative to the private cost. Which route will the government choose?

• A
• B
• C
• D

Donald maximises his utility when buying paperback books and audio books. The price of a paperback book = $3 and the price of an audio book = $6. If the marginal utility of the last paperback book was 12 units of utility (utils), what was the marginal utility of the last audio book purchased?

• 2 utils
• 12 utils
• 16 utils
• 24 utils

Which statement correctly describes the result of a price increase for an inferior good?

• Both the substitution effect and the income effect cause the consumer to buy less of the good.
• Both the substitution effect and the income effect cause the consumer to buy more of the good.
• The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good.
• The substitution effect causes the consumer to buy more of the good and the income effect causes the consumer to buy less of the good.

Which statement about a monopoly is correct?

• Profit maximisation occurs when average cost equals average revenue.
• Sales maximisation occurs when marginal cost equals marginal revenue.
• Sales revenue maximisation occurs when marginal revenue is equal to zero.
• Satisficing occurs when marginal cost is equal to zero.

A satellite communications company is bought by an investment bank. Which outcome has resulted from this purchase?

• a cartel
• diversification
• lateral integration
• vertical integration

The diagram shows the long-run average cost (LRAC) curve for a firm, and three short-run average cost (SRAC) curves. Which statement is correct?

• When the minimum point of SRAC3 is lower than the minimum point of SRAC2 it reflects the law of variable proportions.
• The law of diminishing returns explains why each of the SRAC curves is U-shaped.
• The position of SRAC2 shows the minimum efficient scale of production.
• The rising section of SRAC1 indicates the existence of diseconomies of scale.

What is the most likely reason that barriers to entry might lead to x-inefficiency?

• The firm does not account for any external benefits.
• The firm has no incentive to cut its costs of production.
• The firm’s price is set higher than its average costs.
• The firm’s price is set higher than its marginal costs.

The diagram shows the long-run cost and revenue curves for a public sector monopoly. The government decides to set a price that maximises social welfare. What will be the consequence of this decision?

• The firm will experience diseconomies of scale.
• The firm will make a loss.
• The firm will maximise profits.
• The firm will maximise total revenue