Eco 1 SA3 revision

Identify Y

• 75

• 70

• 10

• 15

Identify X

• 5

• 10

• 15

• 20

Answer explanation

X is identified as 10 because it is the only number in the answer choices that fits the criteria or context provided in the question, making it the correct choice.

To maximise profits, a monopoly will?

• Determine PED and charge max price

• Charge the min price according the law of supply

• Drop to the lowest price to maximise TR

• Decide Q* then charge a price for which there is sufficient demand

Answer explanation

To maximize profits, a monopoly determines the quantity (Q*) to produce and then sets a price that matches the demand for that quantity, ensuring sufficient demand at that price.

Productive efficiency occurs when

• Q* is produced at max AC

• Q* is produced at min AC

• Q* is produced at min MC

• Q* is produced at min MR

Answer explanation

Productive efficiency is achieved when a firm produces at the minimum average cost (min AC). This means resources are utilized optimally, leading to the lowest possible cost per unit of output.

Monopolistic competition is characterised by:

• Differentiated products

• Low barriers to entry

• Many small firms and a low concentration ratio

• All of the above

Answer explanation

Monopolistic competition features differentiated products, low barriers to entry, and many small firms, leading to a low concentration ratio. Therefore, the correct answer is 'All of the above'.

Oligopolies are not characterised by:

• A few large sellers

• High barriers to entry

• Low barriers to entry

• Mutual interdependence

Answer explanation

Oligopolies are characterized by a few large sellers, high barriers to entry, and mutual interdependence. They are not characterized by low barriers to entry, as this would allow many firms to enter the market easily.

If firms collude they

• reduce prices and increase output

• reduce prices and decrease output

• increase prices and decrease output

• shutdown

Answer explanation

If firms collude, they work together to set higher prices and limit production to maximize profits, leading to increased prices and decreased output.

A high concentration ratio would indicate a small number of sellers.

• True

• False

Answer explanation

True. A high concentration ratio indicates that a small number of sellers dominate the market, leading to less competition. This is why the statement is correct.

The market structure for restaurants is?

• Perfect competition

• Monopolistic competition

• Oligopoly

• Monopoly

Answer explanation

The restaurant market is characterized by many sellers offering differentiated products, leading to monopolistic competition. Each restaurant has its unique menu and atmosphere, allowing for some pricing power.

Normal profit is equal to zero economic profit

• True

• False

Answer explanation

True. Normal profit occurs when total revenue equals total costs, including opportunity costs, resulting in zero economic profit. Thus, normal profit is indeed equal to zero economic profit.