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ON-CAMPUS
STUDY PERIOD I EXAMINATIONS 2008
CAMPUS: Townsville
No of Pages including front page,
exam paper and any attachments.
STUDENT NAME:
(block letters)
STUDENT NUMBER:
f- C.5P. 0tr
G1
No
Release to Library
ri
No
Yes
(First Paper)
Yes
Phone No:
5890
Ext. work:
Mobile/a/h ph.
5890
Twenty (20)
INSTRUCTIONS TO STUDENTS:
Section A. Multiple choice questions. Answer all 15 questions (1 mark each, worth 15 marks total)
Section B: Short Answer questions. Answer 4 questions (worth 25 marks in total)
MATERIALS TO BE SUPPLIED BY EXAMINATIONS SECTION:
Examination Booklets required:
Scanner Sheets required:
Yes
No
Any Calculator
Access to a dictionary:
English
Bilingual English translation
Yesg/
Yes W'
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No
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BX2021:03/1(7
Answer
Question
11
12
13 ..
14
15
Answer
.-
--
1. Which of the following would be included as an economic cost but not as an accounting cost?
a)
The lease payments on business premises
b)
The interest component of the business's mortgage repayments
c)
The electricity used in the production process
d)
Business overheads (such as insurance).
e)
The time a business owner spends doing the books each night.
2. Ceteris paribus, which of the following would be likely to shift the demand curve for new homebuilders to the right?
a)
A fall ,n the price of new homes.
b)
An increase in the price of new homes
c)
An economic 'boom' (ie period of growth).
d)
An economic recession.
e)
A fall ,n the price of old homes
3. Assume that the market for coffee is in equilibrium. Ceteris paribus, an unexpected frost that
wipes out half the world's crop is likely to?
a)
shift the demand curve for coffee to the right, increasing equilibrium price
and quantity.
b)
shift the supply curve for coffee to the right, increasing equilibrium price
and quantity.
c)
shift the supply curve for coffee to the left, increasing equilibrium price and
quantity.
d)
shift the supply curve for coffee to the right, increasing equilibrium price
and decreasing equilibrium quantity.
e)
shift the supply curve for coffee to the left, increasing eqUilibrium price and
decreasing equilibrium quantity.
4. If the price elasticity of demand is equal to -2, then
a)
A 1 % increase in price will lead to a 2% fall in the quantity demanded, and
an increase In total revenue.
b)
A 1% increase in price will lead to a 1/2% fall in the quantity demanded,
and an increase in total revenue.
c)
A 1 % increase in price will lead to a 2% fall in the quantity demanded, and
a decrease in total revenue.
d)
A 1 % increase in price will lead to a 1/2% fall in the quantity demanded,
/ and a decrease in total revenue.
e)
A 1 % increase in price will lead to a 2% fall in the quantity demanded. We
cannot tell what will happen to revenue without knowing what marginal
costs are.
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Continued overleaf
8X2021 :0312f7
6. All of the follOWing describe or affect the behavior of long-run costs except:
a)
When the firm is encountering increasing returns to scale, long-run average cost
(LRAC) IS decreasing
b)
The long-run is considered to be a part of a manager's planning horizon
c)
Relatively high fixed costs in the long-run determine the shape of the LRAC
curve.
d)
If the firm is encountering constant retums to scale, LRAC IS constant over that
range of plant sizes.
e)
All of these describe or affect long-run costs
7. If the Marginal costs are equal to 30 and the price elasticity of demand is -2, then what price
maximizes profits?
a)
30
b)
40
c)
50
d)
60
e)
70
CeliA
Firm A: -$1m
LowP
8.
Firm B: +$ 4m
Low P
Firm A: +$ 3m
Firm B: +$ 5m
Firm B: - $ 1m
Cell B
Firm A: 0
CeliC
Firm B: 0
Cell D
Assume that this 'game' is played as a one-shot simultaneous move game (ie both firm A and
firm B have to decide what price to charge, simultaneously). Which of the following is true?
a)
b)
c)
d)
e)
Firm A's dominant strategy is to charge a high price, firm B's dominant strategy is
to charge a low price, so the expected outcome is in cell C.
Firm A's dominant strategy is to charge a low price, firm B's dominant strategy is
to charge a high price, so the expected outcome is in cell B.
Firm A's dominant strategy is to charge a low price, firm S's dominant strategy is
to charge a low price, so the expected outcome is ,n cell D.
Firm A's does not have a dominant strategy, firm S's dominant strategy IS to
charge a low price, so the expected outcome is in cell D.
Firm A's does not have a dominant strategy, so we cannot say what the expected
outcome is.
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Continued overleaf
BX2021 :031317
P 20
18
16
14
12
10
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,
4
2
0
I
0
1 2 3
4 5 6 7 8 9
\S
At a price of 10, how much would the firm need to sell to break even?
a)
b)
c)
d)
e)
4
5
6
7
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Continued overleaf
BX2021 :03/417
20
18
16
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b)
c)
d)
e)
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Continued overleaf
BX2021 :03/517
13.
You are evaluating a potential project which has uncertain future cash flows. The
project will require an immediate outlay of $500. In year 1, cash flow will be $200 w~h
probability .5, and $700 with probability .5. In year 2, cash flows will be $200 with
probability .2, $400 with probability .6 and $700 w~h probability .2. In year three cash
flows will be either $200, $300, $400, $600 or $700 each with probability .2. What is
the expected value of cash flows in year 2?
a)
b)
c)
d)
$400
$450
$420
$433
e)
q=30
=10
L
14.
a)
b)
c)
d)
e)
A profit-maximizing firm has two factors of production: Cap~al (fixed) and labour
(variable). It is currently using the 'optimal' (ie profit maximising) combination of
capital and labour to produce 10 units of output. If the firm wishes to expand
production to 30 units of output, then
in the short-run, it should move from
move from point d to point e.
in the short-run, it should move from
move from point c to point e.
in the short-run, it should move from
move from point f to point e.
in the short-run, it should move from
move from point f to point e.
in the short-run, it should move from
should move from point a to point d.
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Continued overleaf
BX2021 :03/617
A
B
C
D
E
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Continued overleaf
BX2021 :031717
SECTION B - SHORTANSWER QUESTIONS
Answer four (4) questions (worth 25 marks in total)
QUESTION 1: 5 marks
Briefly define and
i.
ii.
iii.
describe each of the following (giving 'real world' examples of their use)
Cost-pius pricing
Price discrimination (all three types)
Transfer pncing
QUESTION 2: 5 marks
A firm that seeks to maximise profits will always produce more than a firm
that seeks to maximise revenues
State whether you agree or disagree with this statement, and briefly explain why.
diagrams to help explain why.
Use
QUESTION 3: 5 marks
Briefly define and describe each of the following (giving 'real world' examples to help
explain what they mean)
i.
Diminishing marginal retums
Ii.
Decreasing retums to scale
iii.
Economies of scope
Is it possible for all three of the above to exist within one firm? Why or why not?
QUESTION 4: 10 marks
ANSWER EITHER
4A
Sometimes firms produce more than one product/output using a single input (eg: farmers
that have cattle can produce cowhides and beef). Use a diagram to show how a firm
determines the optimal level of output for joint products made in fixed proportions. Will it
always be optimal for the firm to sell all of each product? Explain.
OR
4B
Some firms operate in oligopolistic industries where a 'dominant firm' sets a price, which
firms In the 'competitive fringe' simply follow Use a diagram to show (and explain) how
the dominant firm determines which price to set.
Copynght Reserved