BBM102/05 Microeconomics

January 2014 Semester

Practice Questions

Quantitative Questions

Question 1

The table below illustrates the market for curry mee in Penang.

Quantity demanded Quantity supplied

Price (RM)
(units) (units)
10 0 80
20 10 70
30 20 60
40 30 50
50 40 40
60 50 30
70 60 20
80 70 10
90 80 0

(a) What is the equilibrium price and quantity?

[2 marks]

(b) Calculate the revenue received by a seller at equilibrium.

[2 marks]

(c) Newspapers reported that curry mee has health benefits. Demand for
curry mee increased by 20 units.

(i) Calculate the new quantity demanded.

[1 mark]

(ii) What is the new equilibrium price and quantity?

[2 marks]

(iii) Calculate the new revenue. Has it increased or decreased?

[3 marks]

1
Question 2

When the price per carton of 100 Plus falls from RM15 to RM12, the quantity
demanded increases from 100 to 150 cartons per month. The demand for Revive
falls from 150 to 100 cartons per month.

(a) Calculate the price elasticity of demand using the midpoint formula.
[3 marks]

(b) If the price of Coke increases, what will happen to the total revenue
of Coke? Explain.
[3 marks]

(c) Calculate the cross elasticity of demand between 100 Plus and
Revive. Based on the answer, explain the relationship between them.
[4 marks]

Question 3

The table below shows the information related to a firm selling cars.

Total Total Cost Marginal Cost

Output Total Fixed
Variable (RM) (RM)
(units) Cost (RM)
Cost (RM)
1 1000 1400
2 1000 2400
3 1000 3600
4 1000 5000
5 1000 6600

(a) Calculate the total cost and marginal cost in the table above.
[4 marks]

(b) Assume the price of car is at RM1200.

(i) Calculate the total revenue at every output.
[2 mark]

(ii) What is the output at equilibrium?

[2 mark]

(iii) Calculate the profit or loss at equilibrium.

[2 mark]

2
Essay Questions

Question 1

You decided to attend university as a full time student. Why go to university now
rather than when you are much older? Explain in terms of both the expected
benefits and expected costs of your decision.
[10 marks]

Question 2

Elaborate the effects of each of the following events on the equilibrium price and
quantity in the Malaysian market. (Draw a diagram for EACH event)

(a) A terrible drought wipes out 80 percent of rice production. What

would happen to the equilibrium price and quantity of rice?
[3 marks]

(b) Suppose consumer incomes rise. What would happen to the

equilibrium price and quantity of LCD television sets?
[3 marks]

(c) Suppose that paper has become cheaper and government is giving
tax exemptions on book purchases. How will this affect the market for
books?
[4 marks]

Question 3

Explain each of the following with the help of a diagram:

(a) Price ceiling

[5 marks]

(b) Price floor

[5 marks]

Question 4

Using appropriate diagrams derive the supply curve of a perfectly competitive

industry in the long run. Assume that the firm is in experiencing increasing
economies of scale.
[10 marks]