AMERICAN UNIVERSITY OF RAS AL KHAIMAH

SCHOOL OF BUSINESS
Course: Principles of Microeconomics
Course Code: ECON 103
Final Exam
Time: 2 hours

Student Name:Student ID:..

TOTAL: /60 marks

(This Final Exam counts for 40% of your total marks to pass this subject)

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SECTION A: MULTIPLE CHOICE QUESTIONS (40 marks).

1. A congested side street in your neighborhood is

a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
2. An AM radio transmission of a baseball game is
a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
3. A pizza is
a. excludable and rival in consumption.
b. excludable and nonrival in consumption.
c. nonexcludable and rival in consumption.
d. nonexcludable and nonrival in consumption.
4. A local park filled with picnickers is
a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
5. A cable television broadcast of a movie is
a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
6. Goods that are rival in consumption but not excludable would be considered
a. club goods.
b. common resources.
c. public goods.
d. private goods.
7.

A view of a spectacular sunset along a private beach is an example of a

a. private good.
b. public good.
c. nonrival but excludable good.
d. rival but nonexcludable good.

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Figure 1
Cost

D
11

10

9
8
7
6
5
4
3
2
1

A
1

10

11

12 Quantity

8. Refer to Figure 1. Curve A represents which type of cost curve?

a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
9. Refer to Figure 1. Curve C represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
10. Refer to Figure 1. Curve D represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
11. Refer to Figure 1. Curve D is increasing because
a. of diminishing marginal product.
b. of increasing marginal product.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.
12. Refer to Figure 1. Curve A is always declining because
a. of diminishing marginal product.
b. we are dividing fixed costs by higher and higher levels of output.
c. marginal product first increases, then decreases.
d. marginal product first decreases, then increases.

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13. Refer to Figure 1. Curve D intersects curve C

a. where the firm maximizes profit.
b. at the minimum of average fixed cost.
c. at the efficient scale.
d. where fixed costs equal variable costs.
14. A difference between explicit and implicit costs is that
a. explicit costs must be greater than implicit costs.
b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.
c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
d. implicit costs must be greater than explicit costs.
15. Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its
total revenues from the sale are $500. Which of the following statements is correct?
(i) Marginal revenue equals $5.
(ii) Average revenue equals $5.
(iii) Price equals $5.
a. (i) only
b. (iii) only
c. (i) and (ii) only
d. (i), (ii), and (iii)
16. Suppose that in a competitive market the equilibrium price is $2.50. What is marginal
revenue for the last unit sold by the typical firm in this market?
a. less than $2.50
b. more than $2.50
c. exactly $2.50
d. The marginal revenue cannot be determined without knowing the actual quantity
sold by the typical firm.
17. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of
$15 and a marginal cost of $16. It follows that the
a. production of the 100th unit of output increases the firm's profit by $1.
b. production of the 100th unit of output increases the firm's average total cost by$1.
c. firm's profit-maximizing level of output is less than 100 units.
d. production of the 110th unit of output must increase the firms profit but by less
than $1.

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Figure 2
Price

MC

MR
A

D
Quantity

18. Refer to Figure 2. What is the socially efficient price and quantity?
a. price = F; quantity = A
b. price = G; quantity = B
c. price = G; quantity = A
d. price = D; quantity = A
19. Refer to Figure 2. What is the monopoly price and quantity?
a. price = F; quantity = A
b. price = G; quantity = B
c. price = G; quantity = A
d. price = D; quantity = A
20. Refer to Figure 2. What is the area of deadweight loss?
a. the rectangle (F-D)xA
b. the triangle 1/2[(F-D)x(B-A)]
c. the triangle 1/2[(F-G)x(B-A)]
d. the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)]
21. Refer to Figure 2. What area represents the total surplus lost due to monopoly pricing?
a. the rectangle (F-D)xA
b. the triangle 1/2[(F-D)x(B-A)]
c. the triangle 1/2[(F-G)x(B-A)]
d. the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)]
Table 1:
Quantity

Price

1
2
3
4
5
6
7
8
9

$34

Total
Revenue
$34
$60

Average
Revenue

Marginal
Revenue

$30

$26

$26
$10
$2

$18
$84
$10

$-14
$-22
$18

$2
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22. Refer to Table 1. If the monopolist sells 8 units of its product, how much total revenue will
it receive from the sale?
a. $48
b. $70
c. $88
d. $98
23. Refer to Table 1. If the monopolist wants to maximize its revenue, how many units of its
product should it sell?
a. 4
b. 5
c. 6
d. 8
24. Refer to Table 1. When 4 units of output are produced and sold, what is average revenue?
a. $17
b. $18
c. $22
d. $24
25. Refer to Table 1. What is the marginal revenue for the monopolist for the fifth unit sold?
a. $2
b. $6
c. $10
d. $15
26. Refer to Table 1. Assume this monopolist's marginal cost is constant at $9. What quantity
of output (Q) will it produce and what price (P) will it charge?
a. Q = 4, P = $22
b. Q = 3, P = $26
c. Q = 5, P = $18
d. Q = 6, P = $14
Figure 3
1000

900
800

ATC

700

MC

600
500
400
300
200

100

MR
2

10

12

14

16

Quantity

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27. Refer to Figure 3. The firm in this figure is monopolistically competitive. It illustrates
a. the shut-down case.
b. a long-run economic profit.
c. a short-run economic profit.
d. a short-run loss.
28. Refer to Figure 3. At the profit-maximizing, or loss-minimizing, output level, the firm in
this figure has total costs of approximately
a. $600.
b. $3,600.
c. $4,000.
d. $5,500
29. Refer to Figure 3. At the profit-maximizing, or loss-minimizing, output level,
how many units of output will the firm in this figure produce?
a. 4
b. 6
c. 8
d. This firm will choose not to produce.
30. Refer to Figure 3. What price will the monopolistically competitive firm charge
in this market?
a. $500
b. $600
c. $700
d. $800
31. Refer to Figure 3. At the profit-maximizing, or loss-minimizing, output level,
the firm in this figure has total revenue of approximately
a. $3,500.
b. $4,200.
c. $4,500.
d. $5,500.
32. Refer to Figure 3. The maximum total short-run economic profit for the
monopolistically competitive firm in this figure is
a. $500.
b. $600.
c. $750.
d. $1,000.
33. Refer to Figure 3. Which of the following will occur in the long run in this
industry?
a. Firms will exit this industry.
b. Firms will enter this industry.
c. This firm will continue to earn positive economic profits.
d. This firm will incur losses.

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Table 2:
Only two firms, Amman and Lamie, sell a particular product. The table below shows the
demand curve for their product. Each firm has the same constant marginal cost of $8 and
zero fixed cost.
Price
Quantity Total
Revenues
60
0
0
55
100
5,500
50
200
10,000
45
300
13,500
40
400
16,000
35
500
17,500
30
600
18,000
25
700
17,500
20
800
16,000
15
900
13,500
10
1000
10,000
5
1100
5,500
0
1200
0

34. Refer to Table 2. If Amman and Lamie operate to jointly maximize profits, then what is the
price?
a. $45
b. $40
c. $35
d. $30
35. Refer to Table 2. If Amman and Lamie operate to jointly maximize profits, then what
quantity is sold?
a. 800
b. 700
c. 600
d. 500
36. Refer to Table 2. If Amman and Lamie operate to jointly maximize profits and agree to
share the profit equally, then how much profit will each of them earn?
a. $9,000
b. $8,750
c. $8,000
d. $6,750
37. Refer to Table 2. Amman and Lamie agree to maximize joint profits. However, while
Amman produces the agreed upon amount, Lamie breaks the agreement and produces 100
more than agreed, how much profit does Lamie make?
a. $10,000
b. $9,000
c. $8,750
d. $7,700
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38. Refer to Table 2. Amman and Lamie agree to jointly maximize profits. If Amman and
Lamie each break the agreement and each produce 100 more than agreed upon, how much
less profit does each make?
a. $500
b. $800
c. $1,000
d. $1,500
39. Workers who work the night shift are often paid more than those who do identical work on
the day shift. This is referred to as a
a. discriminatory wage practice.
b. compensating differential.
c. wage inequity.
d. a market inefficiency.
40. When employers pay an efficiency wage above the market equilibrium wage, this will
likely result in
a. a surplus of labor.
b. no unemployment.
c. an increase in the number of people employed.
d. an decrease in the quantity of labor supplied.
SECTION B: SHORT-ANSWER QUESTIONS (20 marks).
1.

Describe how government is involved in creating a monopoly. Why might the government
create one? Give an example (5 marks).

2.

What is the deadweight loss due to profit-maximizing monopoly pricing under the following
conditions: The price charged for goods produced is $20. The intersection of the marginal
revenue and marginal cost curves occurs where output is 100 units and marginal revenue is
$8. The socially efficient level of production is 130 units. The demand curve is linear and
downward sloping, and the marginal cost curve is constant (5 marks).

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3. Fill in the characteristics of the four market structures in this table below (5 marks).
Number of sellers

Perfect
competition

Monopolistic
competition

Oligopoly

Monopoly

Free entry/exit
(Yes/No)
Long run economic
profits
(Zero/Positive/Negative)
Products characteristics
(Identical/Differentiated)
Firms market power
(Price maker/taker)
Number of sellers
(One/A few/Many)
4. Graphically depict the deadweight loss caused by a monopoly. How is this similar to
the deadweight loss from taxation? (5 marks)

____________________NO MORE QUESTIONS___________________________

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FOR INSTRUCTOR USE ONLY

Final Exam
Marks
Obtained

Student
Learning
Outcomes

Question

Marks
Assigned

1-5

2, 3, 4

6-10

2, 3, 4

11-15

2, 3, 4

16-20

2, 3, 4

21-25

2, 3, 4

26-30

2, 3, 4

31-35

2, 3, 4

36-40

2, 3, 4

2, 3, 4

II

2, 3, 4

III

2, 3, 4

IV

2, 3, 4

TOTAL

60

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