HARAMAYA UNIVERSITY
COLLEGE OF CONTINUING AND DISTANCE EDUCATION
CONTINUING EDUCATION PROGRAM
Micro Economics I Assignment
.
Date 17/01/2014
INSTRUCTIONS
1. Make sure that the assignment has three part Multiple-choice, discussion and work
out part
2. Show all the necessary steps while doing discussion and work out part
3. Your hand writing is also considerable
STUDENT INFORMATION:
NAME: ______________________________________.
I.D. No: _____________________________________.
Department: _________________________________.
Centre: ______________________________________.
Page 1 of 4
Part I -Multiple choices
Choose the best alternative from the choices given under each question
1. Demand function of a consumer is estimated to be Q = 30 – P. If the price is birr 20, price
elasticity of demand is:
A. -4
B. -2
C. -1
D. Zero
2. Which one of the following is true about indifference curve?
A. Marginal rate of substitution (MRS)is the slope of budget line
B. As we move along the curve from the right upwards to the left marginal rate of
substitution is increasing
C. Indifference curves are concave to the origin
D. An indifference curves has positive slopes
E. None
3. All are true about consumer’s equilibrium except;
A. At equilibrium MRS equals the slope of budget line
B. At equilibrium the slope of the indifference curve is equal to the price ratio of
two goods
C. MRS x, y is equal to MUy /MUx=Px/Py
D. All
4. If Mr. Abebe chooses PEPSI in a situation in which Coca-Cola is also available to him
he will not choose Coca-Cola in any situation in which PEPSI is also available. This is
to mean:
A. Substitution
C. Transitivity
B. Complementary
D. Consistency
5. Demand curve for commodity X shifts outward except:
A. When price of commodity X’s substitute is increasing
B. When test and preference for commodity X is high
C. When price of commodity X is decreasing
D. None
6. Which one is true about stage I in short run production?
A. It is from initial production up to the maximum of marginal product
B. Since marginal productivity of labor is positive it is choice of rational firms
C. Called extensive margin because resources are over utilized
D. All
E. None
Page 2 of 4
7. Which one of the following is true about long-run cost theory?
A. When long-run cost (LAC) is decreasing short run average costs (SAC) are
working at their full capacity.
B. When long-run cost (LAC) is decreasing short run average costs (SAC) are over
working.
C. When long-run cost (LAC) is increasing short run costs (SAC) are optimality
utilizing.
D. All
E. None
8. Price discrimination takes place when
A. A homogeneous product is sold at different prices and not justified by cost
differences.
B. Different prices, to compensate for differences in characteristics of the product,
are charged
C. The price is equal to per unit cost of the product.
D. Increased price lowers the supply of the product
E. Both (a) and (c) above
9. Which of the following statements is true?
A. In the short run, a competitive firm may incur losses but the monopolist will
always earn abnormal profits.
B. A monopolist can be in equilibrium whether costs are increasing, decreasing or
constant but a competitive firm can be in equilibrium only under decreasing cost
conditions.
C. In the long run, the monopolist will earn normal profits while a competitive firm
earns abnormal profits.
D. In the long run, when compared to the competitive market, the price and the output
under monopoly are higher.
E. Consumers’ surplus is more under conditions of perfect competition than under
monopoly.
10. . Market inefficiencies can come from
A. Externalities
B. Monopolies
C. Imperfect information
D. Entry Barriers
E. All of the above.
Page 3 of 4
PART: II
Discussion (part one)
1. Why long-run average cost is U-shaped? And what do we mean by long-run cost curves
is a planning curve? (use graph and briefly explain it)
2. Why the long-run equilibrium of a competitive firm is determine at minimum point of
long-run cost? Does monopolist produce at minimum long-run cost? What is the
implication on the basis of social cost?
PART: III
Work out (Part Two)
1. Assume there are 10 numbers of the consumers having identical demand function given by
P = 200 – 0.2Q and 3 suppliers (firm A, firm B and firm C) available in the market having
supply function given by Qa=-200+3P, Qb=-100+4P, and Qc = -200+3P then find
A) Determine market demand and market supply?
B) Calculate equilibrium price and equilibrium quantity?
C) What happens if the price of commodity is birr 150? And how many of shortage
or surplus will be created?
2. An industry has 150 firms 50 are located in Ambo and 100 in Adama. All the output sells
only at Addis Ababa. The cost of transportation is Birr 16 per unit from Ambo to Addis
Ababa and Birr 20 from Adama to Addis Ababa. Cost function of all firms in the industry
is identical and given by C = 0.2Q2. The industry demand function is Qd = 3000 – 25P
A. What is the equilibrium price for the industry?
B. What is the output supplied by each firm at Ambo and Adama?
C. Calculate the profit of each firm at Ambo and Adama?
D. What will be the equilibrium price of the industry if a government imposes an
entry tax of birr 5 per unit of output?
Page 4 of 4