Preparation for modified summative!

How long is the Paper 3 in the May World Exam?

• 55 minutes

• 1 hour 15 minutes

• 1 hour 45 minutes

• 1 hour 30 minutes

Which of the following is NOT a characteristic of monopolistic competition?

• Large number of small firms

• Slightly differentiated products

• No barriers to entry

• Allocative efficiency in long run

Where does the profit-maximising level of output occur?

• MC intersects min ATC

• MR equals MC

• P (MB) equals MC

• P equals minimum ATC

Why is a firm in perfect competition unable to continue earning supernormal profits in the long run?

• There are perfect substitutes in the market.

• Buyers have perfect information.

• Each firm is a price-taker.

• No barriers to entry in this market.

Which condition reveals whether a firm should shut down in the short run?

• P < AVC

• ATC > P > AVC

• P > AFC

• P < ATC

Unrelated but why not! Which represents the lowest degree of economic integration?

• Common market

• Customs union

• Monetary union

• Fiscal union

What is a minimum efficient scale?

• The lowest level of output that minimises LRATC

• The lowest level of output that minimises SRATC

• The lowest level of output that minimises decreasing returns to scale

• The lowest level of output that minimises MC

A firm chooses to revenue maximise rather than profit maximise. How do we know where total revenue (TR) is at its maximum?

• When MR equals MC.

• When MR equals 0.

• When MC intersects minimum AVC.

• When MC intersects minimum ATC.

A profit-maximising firm is allocatively efficient in the short run. What may account for this?

• It is producing output where MPC equals MPB.

• It is producing output at a level that minimises ATC.

• It is operating on the price inelastic portion of its demand curve.

• It has a perfectly elastic demand curve.

A firm realises it is operating on the price inelastic portion of its demand curve. What should it do?

• Increase output.

• Decrease price.

• Increase price.

• Produce where P=MC.

Answer explanation

E.O.I.S for the relationship between P and TR.

Elastic - Opposite

Inelastic - Same

Increase price to increase total revenue!