UTM

Fakulti Pengurusan

UNtVERSITI TEKNOLOGi MALAYSIA

PEPERIKSAAN AKHIR SEMESTER 1

SESI 2017/2018
(FINAL EXAMINATION- SEMESTER 1
2017/2018 SESSION)

KOD KURSUS SHAD 1013

(COURSE CODE)

KURSUS PRINSIP MIKROEKONOMI

(COURSE) (PRINCIPLES OF MICROECONOMICS)

PROGRAM SARJANA MUDA

(PROGRAMME) (BACHELOR DEGREE)

MASA 2 JAM 30 MINIT

(DURATION) (2 HOURS 30 MINUTES)

TARIKH JANUARI 2018

(DATE) (JANUARY 2018)

MARKAH 80 (MENYUMBANG 40 PERATUS

(MARKS) KEPADA MARKAH KESELURUHAN)
(CONTRIBUTING 40 PERCENT TO
THE OVERALL MARKS)

ARAHAN KEPADA CALON :

(INSTRUCTION TO CANDIDATES)

BAHAGIAN A Jawab SEMUA soalan.

(PART A) (Answer ALL questions)

BAHAGIAN B Jawab SEMUA soalan.

(PARTB) (Answer ALL questions)

BAHAGIAN C Jawab SATU (1) soalan sahaja.

(PART C) (Answer ONE (1) question only)

BAHAGIAN D Jawab SATU (1) soalan sahaja.

(PARTD) (Answer ONE (1) question only)

KERTAS PEPERIKSAAN INI TERDIRI DARIPADA 12 MUKA SURAT SAHAJA

(TERMASUK MUKA SURAT INI).
THIS EXAMINATION PAPER CONSISTS OF ]2 PAGES ONLY (INCLUDING THIS
PAGE).
PART A : (20 marks)
Instruction : Answer all questions

1. The amount of output that a firm decides to sell has no effect on the market price in
a competitive industry because
A. the market price is determined by the government.
B. the firm supplies a different good than its rivals.
C. the firm’s output is a small fraction on the entire industry’s output.
D. the short run market price is determined solely by the firm’s technology.

2. Bette’s Breakfast, a perfect competitive eatery, sells its “Breakfast Special” (the only
item on the menu) for RM5.00. The costs of waiters, cooks, foods, etc. average out
to RM3.95 per meal. The costs of the lease, insurance and other such expenses
average out to RM1.25 per meal. Bette should
A. lower her output.
B. continue producing in the short and long run.
C. raise her prices above the perfectly competitive level.
D. continue producing in the short run, but plan to go out of business in the long
run.

3. When the price faced by competitive firm was RM5, the firm produced nothing in
the short run. However, when the price rose to RM10, the firm produced 100 tons of
output. From this we can infer that
A. the firm’s marginal cost curve must be flat.
B. the firm’s marginal costs of production never fall below RM5.
C. the firm’s average cost of production was less than RM10.
D. the minimum value of the firm’s average variable cost lies between RM5 and
RM10.

4. If a perfect competitive firm decreases output when MR < MC, then

A. profit will equal zero.
B. profit will increase.
C. profit will decrease.
D. profit will remain the same.

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5. Under which of the following scenarios is it most likely that monopoly firms will
exhibit monopoly power?
A. When there are few firms in the market and the demand curve faced by each
firm is relatively inelastic.
B. When there are many firms in the market and the demand curve faced by each
firm is relatively inelastic.
C. Where there are few firms in the market and the demand curve faced by each
firm is relatively elastic.
D. When there are many firms in the market and the demand curve faced by each
firm is relatively elastic.

6. The Marginal Revenue (MR) and Marginal Cost (MC) of green ink pads faced by a
monopoly firm is given as follows:
MR = 2 500 - 5Q
MC = 5 Q

Suppose that the firm chooses to produce 200 ink pads. At this level of output, the
demand for ink pads is
A. inelastic.
B. elastic.
C. unpredictable.
D. infinity.

7. The monopolist has no supply curve because

A. the quantity supplied at any particular price depends on the monopolist’s
demand curve.
B. the monopolist’s marginal cost curve changes considerably over time.
C. the relationship between price and quantity depends on both marginal cost
f

and average cost.

D. although there is only single seller at the current price, it is impossible to know
how many sellers would be in the market at higher prices.

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8. The following diagram shows the oligopoly market demand curve and the ATC curve
for a firm. Each firm in the market has the same ATC curve. If the firms in the
industry agree to form a cartel, the firms in the industry make an economic profit if
there are________firms, each producing________ units per hour.
A. 3 ; 4 000.
B. 4 ; 3 000.
C. 2 ; 6 000.
D. 2 ; 4 000.

Price and c osts (dollars p er unit)

9. When a monopolistically competitive firm's demand curve shifts leftward, what

happens to its marginal revenue curve?
A. Nothing, the marginal revenue curve is unchanged.
B. It disappears.
C. It shifts rightward.
D. It shifts leftward.

10. The following diagram shows the market for airplanes. Suppose the airplane market
is an oligopoly. If the firms act as a monopolist, the price will b e ______and if the
firms act as competitors the price will be ____
A. $ 13million dollar per plane; $ 1 million per plane.
B. $ 1 million per plane; $ 13 million per plane.
C. $ 13 million per plane; $ 13 million per plane.
D. $ 1 million per plane; $ 1 million per plane.

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 Price and cost; (m illio n s o f d ollars p e r airplane)

11. The four factors of production that produce goods and services are
A. labor, money, machinery, and land.
B. labor, capital, money, and entrepreneurship.
C. labor, capital, land, and entrepreneurship.
D. labor, investment capital, machinery, and land.

12. In the open labor market

A. households demand labor.
B. firms demand labor.
C. firms supply labor.
' D. wage are determined only by firms alone.

13. Hot Coffee Bhd. hires workers and buys coffee roasting machines so it can serve
fresh roasted coffee to its customers. The demand for________is a derived demand
because________.
A. both workers and roasting machines; both are used to produce and sell coffee.
B. only workers; there is a limited number of people willing to work in coffee
shops.
C. only roasting machines; capital equipment can be resold in other markets.
D. neither workers nor roasting machines; derived demand only applies to actual
products produced for customers.

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14. The value of marginal product is equal to the
A. additional revenue from selling one more unit of the product.
B. change in total revenue from selling one more unit of product.
C. additional cost of hiring one more unit of a factor of production.
D. change in revenue from hiring one more unit of a factor of production.

The value of marginal product of labor

A. always increases as more labor is hired.
B. is constant as long as each worker is paid the same wage rate.
C. declines only if each worker is paid more than the previous worker.
D. at some point declines as more workers are hired.

If a firm finds itself at the point where the value of marginal product of labor is greater
than its wage rate, then the firm
A. stops hiring more workers but does not fire any because the firm is
maximizing its profit.
B. decreases the number of workers it has hired in order to increase its profit.
C. increases the number of workers it hires in order to increase its profit.
D. increases sales to keep its employees busy.

An example of someone bearing the burden of a negative production externality

would be
A. Taylor living downwind from a smelly feedlot where goats are raised.
B. Jess's roommate smokes and she doesn't.
C. Lynna's neighbors play loud music late at night.
D. All of these are examples of someone bearing the burden of a negative
production externality.

Evidence of external costs in the production of a product is present if

A. the price of the product is higher than it should be.
B. the production cost increases because of an increase in the minimum wage.
C. non-buyers and/or non-producers of the product experience a loss for which
they are not compensated.
D. buyers refuse to purchase the product.

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19. The following diagram illustrates the Marginal Cost (MC), Marginal Benefit (MB)
and the Marginal Social Cost (MSC) to the city of Seattle for each rock concert that
is offered. It also illustrates the marginal private benefit. If there is no external benefit,
therefore the efficient number of concerts in Seattle is
A. 0.
B. 5.
C. 10.
D. 20.

Cost and benefit (thousands of dollars per concert)

Quantity (concerts per year)

20. Which of the following is NOT an example of a good with an external cost?
A. electricity generation producing CO2 emissions that contributes toward global
warming.
B. logging that pollutes a nearby river.
C. Jess smoking near her non-smoking roommate.
D. Ahmed working at a bank and getting flu shot each fall.

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Part B : (20 marks)
Instruction : Answer all questions.

1. For each of the following, state true (T) or false (F). Explain your answer using an
appropriate diagram where necessary.

(a) In long run equilibrium condition, a perfect competitive firm will produce an
output level at which its long-run average cost curve is upward sloping.
(5 marks)
(b) If firms in an oligopoly operate as a monopoly, the industry produces the most
output and if they operate as perfect competitors, the industry produces the
least output.
(5 marks)
(c) United Limo and Metro Limo are duopolists facing a game theory condition
in the open market. They cannot compete in terms of price, but they can
compete through advertising. Based on the following payoff matrix, United
Limo has a dominant strategy and should continue with advertising in the
market.

United Limo
Increase Don’t increase
advertising advertising
Increase
Metro Limo advertising (25, 15) (30, 0)
Don’t increase
advertising (15, 20) (40, 5)

(5 marks)

(d) Monopolistically competitive firms have monopoly power because they face
downward sloping demand curve.
(5 marks)

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Part C : (20 marks)
Instruction : Answer one (1) question only.

2. In a competitive market, the following supply and demand equations are given:
Supply Qs = 920 + 690P
Demand QD = 3 750 - 725P

where, P represents the price per unit, and Q represents the rate of sales of product X
in a competitive market.
(a) Calculate the equilibrium level of price and quantity that would prevail in the
free market.
(6 marks)
(b) The government has imposed RM2.50 as a support price for product X in a
free market. Sketch the diagram which indicates free market price and
quantity equilibrium, and the shortage or excess supply in the free market.
(6 marks)
(c) Calculate the loss of consumer surplus that would occur under the support
program.
(5 marks)
(d) Is the support price policy efficient from an economist’s viewpoint?
(3 marks)

3. (a) Would the monopolistic competitive firms and the monopoly firm achieves
efficiency and welfare in the long-run period? Explain.
(10 marks)
(b) Explain how price and quantity are determined in the oligopoly market using
the kinked demand curve.
(10 marks)

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4

4. (a) The following expressions describe a perfectly competitive labor market. The
labor supply curve is:
Ls = 3 + 0.000375L

The marginal revenue product of labor curve is:

MRPl = 13 + 0.000433L

L represents the number of labor hours worked per week and W represent the
hourly wage of workers.
(i) Based on the information given, calculate the equilibrium wage in this
labor market.
(3 marks)
(ii) Find the optimal number of labor hours worked per week.
(3 marks)
(iii) Determine the economic rent earned by the labor in this situation.
(4 marks)

(b) Why do soccer players, such as Neymar from Brazil make so much money,
while teachers in public schools make so much less? In your answer, discuss
the value of marginal product and the actions of profit-maximizing concept.
(10 marks)

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Part D : (20 marks)
Instruction : Answer one (1) question only.

5. The marginal cost of educating a college student is RM5 000 a year. The table shows
the marginal benefit schedule from a higher education. The marginal external benefit
from a college education is a constant at RM2 000 per student per year. Assume that
there is no public university.

Number of Students Marginal Private Benefit

(Millions per year) (RM per student per year)
1 5 000
2 3 000
3 2 000
4 1 500
5 1 200
6 1 000
7 800
8 500

(a) With no government involvement in college education:

(i) How many students enroll? (4 marks)
(ii) What is the tuition fee? (4 marks)
(iii) What is the deadweight loss created? (6 marks)

(b) If the government subsidizes colleges and sets the subsidy so thatthe efficient
number of students enrolls, what is the subsidy per student, how many
students enroll, and what is the cost to taxpayers?
(6 marks)

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A country which does not tax cigarettes is considering the introduction of a RM0.40
per pack tax. The economic advisors in the country estimate the supply and demand
curves for cigarettes as:
Qd = 140 000 —25 OOOP
Qs = 20 000 + 75 000P

Where, Q=daily sales in packs of cigarettes, and P=price per pack. The country has
hired you to provide the following information regarding the cigarette market and the
proposed tax.

(a) What is the equilibrium values in the current environment with no tax?
(5 marks)
(b) What price and quantity would prevail after the imposition of the tax? What
portion of the tax would be borne by buyers and sellers respectively?
(7 marks)
(c) Calculate the deadweight loss from the tax. Could the tax be justified despite
the deadweight loss? What tax revenue will be generated?
(8 mark)