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CHAPTER 1

THE SCOPE AND METHOD OF ECONOMICS & THE


ECONOMIC PROBLEM: SCARCITY AND CHOICE

 Economic is the study of how individual (a person, a firm, or even a


country) allocate the scarce resources in order to optimize his/her
objectives.
 Economics ask and attempt to answer two kinds of questions: positive
and normative. Positive economics attempt to understand behavior
and the operation of economies without making judgments about
whether the outcomes are good or bad. Normative economics look at
the results of economic behavior and asks whether the results are
good or bad.
 Models and theories can be expressed in many ways. The most
common ways are in words, in graphs, and in equations.
 Empirical economics involve the collection and use of data to test
economic theories. In principle, the best model is the one that yields
the most accurate prediction.
 Because resources are scarce relative to human wants in all societies,
using resources to produce one good or service implies not using
them to produce something else. This concept of opportunity cost is
central to an understanding of economics.
 In some modern societies, government plays a big role in answering
the three basic questions. There are neither purely planned economics
and nor purely laissez-faire economics; all economics are mixed.
CHAPTER 1
THE SCOPE AND METHOD OF ECONOMICS & THE
ECONOMIC PROBLEM: SCARCITY AND CHOICE

Fill in the Blank

1. is concerned with household income, deals with


national income.
2. The alternative that we give up when we make a choice or a decision
is called .
3. Cost that cannot be avoided because they have already been incurred
is called .
4. If you decide to take time off from work, the opportunity cost of your
leisure is .
5. A device used to analyze the relationship between two variables while
the values of other variables are held unchanged is called .
6. Criteria for judging economic outcomes are , ,
, and .
7. The inputs into the process of production is called .
8. is the slope of PPF.
9. Economic growth will shift PPF curve to the & .
10. A producer has a/an over another in the production of a
good or service if it can produce that product using fewer resources.
True or False

1. Economic is the study of how individuals and societies choose to use


the scarce resources that nature and previous generations have
provided.
2. Opportunity costs arise because resources are scarce.
3. Normative economics describes what exists and how it works.
4. Economic theory is a statement or set of related statements about
cause and effect, action and reaction.
5. The compilation of data that describe phenomena and facts is called
empirical economics.
6. Human wants are limited but resources are unlimited.
7. Buildings, equipment, desks, chairs, software, roads, bridges, and
highways are a part of the nation’s stock of capital.
8. An efficient economy is one that produces what people want at the
least possible cost.
9. Producers are those who take resources and transform them into
usable products, or outputs.
10. Improved productivity may come from additional capital or from the
discovery and application of new, more efficient techniques of
production.
Multiple Choice

1. An approach to economics that seeks to understand behavior and the


operation of systems without making judgements is called …
a. normative economics
b. positive economics
c. descriptive economics
d. empirical economics

2. A formal statement of a theory, usually a mathematical statement of a


presumed relationship between two or more variables is ….
a. Model
b. Graphic
c. Diagram
d. Formula

3. These are four specific criteria in judging the economic performance,


except ….
a. Efficiency
b. Equity
c. Growth
d. Wealth

4. Which one of these statements below that’s not explaining an


empirical economics?
a. Economists studying the labor market can now test behavioral
theories against the actual working experiences of thousands of
randomly selected people who have been surveyed continuously since the
1960s.
b. Monitoring and studying the behavior of the national economy
at the National Bureau of Economic Research (NBER) pass
thousands of items of data, collected by both government
agencies and private companies
c. Keith Chen of Yale, has used experiments with monkeys to
investigate the deeper biological roots of human decision
making.
d. Government should reconsider about the rise of fuel price.

5. An increase in the total output of an economy is called ….


a. Inflation
b. Saving
c. Growth
d. Rise

6. These are the reasons to study economics, except ….


a. to learn a way of thinking
b. to understand society
c. to understand global affairs
d. to rule the world.

7. These are the basic questions that must be answered to understand the
functioning of the economic system, except ….
a. What gets produced?
b. How is it produced?
c. Who gets what is produced?

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d. How much is the cost of production?

8. These are economic system that usually used by countries, except ….


a. Commando
b. Market
c. Laissez-faire
d. Mixed

9. Factor that will move PPF curve to the left is ….


a. Expansion
b. Growth
c. Good technology invention
d. Recession

10. The PPF illustrates a number of important economic concepts,


except….
a. scarcity
b. unemployment
c. inefficiency
d. population

Essay

1. There are four criteria for judging economic outcomes, what are they?
Explain each criteria!
2. Explain briefly the differences between macroeconomics and
microeconomics!

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3. What is efficient market? What is the meaning of “no free lunch”
related to it?
4. Economics asks and attempts to answer two kinds of questions:
positive and normative. Explain and give an example of each!
5. Explain briefly the concept of ceteris paribus!
6. For each of the following, describe some of the potential opportunity
costs:
a. Studying for your economics test
b. Spending 2 hours playing computer games
c. Going to graduate school
d. Buying a new car instead of keeping the old one
7. What is the relationship between scarcity, choices, and opportunity
cost?
8. Explain the difference between comparative and absolute advantage
using an example and draw the PPF!
9. Draw PPF curve and explain briefly all factors that shift PPF curve!
10. “As long as all resources are fully employed, and every firm in the
economy is producing its output using the best available technology,
the result will be efficient.” Do you agree or disagree with the
statement? Explain your answer.
CHAPTER 2
DEMAND, SUPPLY, MARKET EQUILIBRIUM & ITS
ELASTICITY

 The law of demand indicates a negative relationship between price


level and quantity of demand in a period so when price level
increased causes quantity of demand decreased, vice versa.
 Quantity demanded may change due to changes in the price level that
caused movement along the demand curve, while the demand for
most goods may change due to changes in income, wealth, tastes,
prices of other goods, and expectations that caused a shift in the
demand curve.
 The law of supply indicates a positive relationship between price level
and quantity of supply in a period so when price level increased
causes quantity of supply increased, vice versa.
 Quantity supplied may change due to changes in the price level that
causes movement along the supply curve, while the supply for most
goods may change due to changes in cost of production, and prices of
related goods that caused a shift in the supply curve.
 Market equilibrium occurs when the quantity demanded equals the
quantity supplied which resulting equilibrium price level and
equilibrium output. When the quantity demanded exceeds the quantity
supplied will occur excess demand (shortage), could be caused by a
price ceiling which the price level is below the equilibrium price.
When the quantity supplied exceeds the quantity demanded will occur
excess supply (surplus), could be caused by a price floor which the
price level is above the equilibrium price.
 Resource allocation is the output of every economic system! It does
not exclusively belong market system, price rationing is the market
system distributes goods and services on the basis of willingness and
ability to pay.
 Consumer surplus is the difference between the maximum amount a
person is willing to pay for a good and its current market price, the
area is below a demand curve and above a price level. Producer
surplus is difference between the full cost of production for the firm
and the current market price, the area is above a supply curve and
below a price level.
 The dead weight loss is the net loss in consumer surplus and producer
surplus due to reduced production or excess in production.
 Elasticity is a general concept that can used to quantify the response
in one variable when another variable changes. Price elasticity of
demand measures how responsive consumers are to changes in the
price of a product.
Price Elasticity of Demand = (% Change in Quantity Demanded)/
(% Change in Price)
 The types of elasticity of demand are perfectly inelastic (E d=0),
inelastic (0<Ed<1), unitary elastic (Ed=1), elastic (Ed>1), and perfectly
elastic (Ed=~).

 The CrossElasticity = ( % Change in Quantity demanded of y) /


(% change in price levelof x) ; when E>0 indicates both of goods are
substitutes and when E<0 indicates both of goods are complements

.
CHAPTER 2
DEMAND, SUPPLY, MARKET EQUILIBRIUM & ITS
ELASTICITY

Fill in the Blank


1. Quantity supplied equals the quantity demanded, it is called
.
2. Demand curve has slope indicates the relationship between
and
3. Fall in price of shoes will supply curve to the .
4. The elasticity of demand when corn sales increased 50% when the
price decreased 25% is .
5. Labor traded in market while the foods traded in
market.
6. The difference between the current price and the total cost of
production is called .
7. The Elasticity of demand is unitary inelastic when .
8. Quantity of demand not respond at all when there are changes in
prices, the kind of elasticity of demand is .
9. Supply curve and demand curve will move because of change in
.
10. occurs when the quantity of supply is more than quantity
of demand.

True or False

1. Law of supply shows a positive relationship between quantity of


supply and current price.
2. An improvement in production technology will shift the supply curve
to the left.
3. The supply function is Qs=85+0,5Px, when the price is $100, then
quantity supplied of X is 350 units.
4. Deficit occurs when the quantity of supply is less than quantity of
demand.
5. Price of goods, prices of related products, cost of production, and
income are the determinants of demand.
6. In the input market, households offer factors of production while the
firms made the demand factors of production.
7. Negative relationship between quantity of demand and current price is
showed in law of supplied.
8. Increasing in the apple price by 40% led to an decrease in the quantity
of apple demanded by 60%, then the elasticity of demand is an
inelastic type.
9. An increase in production cost caused the supply curve move to the
left.
10. Percentage an increase in the price of good Y is 40% causes a
decrease in the quantity demanded of the X by 20%, then good X and
good Y are complements.
Multiple Choice

1. Price elasticity of demand is calculated as


a. The percentage change in quantity demanded divided by the
percentage change in price
b. The percentage change in price divided by the percentage
change in quantity demanded
c. The absolute change in quantity demanded divided by the
absolute change in price
d. The absolute change in quantity supplied divided by the absolute
change in price

2. Producer surplus in the market is ...


a. Above the supply curve and above the price level
b. Below the demand curve and above the price level
c. Below the demand curve and below the price level
d. Above the supply curve and below the price level

3. Edith buys 9 magazines per week when the price is $3. She buys 11
magazines per week when their price is $2. Edith’s price elasticity of
demand is ...
A. -1/2
B. -2/3
C. -3/4
D. -1.0

4. Change in price of goods and services causing …..


A. Shifting demand curve
B. Change of quantity demanded
C. Movement along the demand curve
D. No change in quantity
5. A good for which an ...... in income raises the quantity demanded is
giffen good.
a. constant
b. increase
c. decrease
d. change

6. If price elasticity of demand is -0.5.


a. a 1% decrease in quantity demanded leads to a 0.5% decreae in
price.
b. a 1% decrease in price leads to a 0.5% increase in quantity
demanded.
c. a 50% decrease in price leads to a 1% increase in quantity
demanded.
d. Demand is elastic.

7. When demand is price inelastic, total revenue is


a. Directly related to quantity demanded
b. Inversely related to quantity demanded
c. Directly related to price
d. Not related to either price or quantity demanded

8. When an increasing income caused the decline of the quantity


demanded of X, X is......
a. Inferior
b. Giffen
c. Complements
d. Substitutes
9.
P D

q
The graph above shows…
a. Elastic demand
b. Unitary elastic demand
c. Perfectly elastic demand
d. Perfectly inelastic demand

10. P

800 A
600 B

400 C
200 D

20 40 80 100 Q
According to the graph, the equilibrium price and quantity are? a.
$800, 80
b. $400, 20
c. $800, 20
d. $400, 80
Essay

1. Give complete explanation about law of supply and law of demand!


And complete your answer with the graph!
2. Explain and show with graph the difference between floor price and
ceiling price!
3. Find the equilibrium of these
equation: Qd = 350 – 5P and Qs = 50
+ 10P Complete your answer with
graph!
4. Fill in the accompanying table, showing whether equilibrium price
and equilibrium quantity go up, down or stay the same, or is
indeterminate
No Change in An Increase A Decrease in
Supply in Supply Supply
No change in
Demand
An Increase in
Demand
A Decrease in
Demand
5. Explain with a graph for consumer surplus, producer surplus, and
dead weight loss!
6. When the price is Rp4.000, the quantity demanded is 800. When the
price is Rp2.000, the quantity demanded is 390. What is the price
elasticity of demand?
7. Complete the following demand schedule and draw the demand curve
if known demand function is Qdx=500-25Px.

Team of Microeconomics I Teaching Assistant | 20


Price Qd (Unit)
(Rp)
20
125
250
5
500

8. Give a complete explanation and example of each about types of


elasticity of demand!
9. a. The price of fried chicken changed from Rp10.000 to Rp14.000,
this causes a change in quantity demanded of burger from 50 to
60 units. Calculate the cross elasticity and determined a
relationship between these goods!
b. The price of X is Rp7.000. Quantity demanded of X changes
from 100 units to 150 units when the price of Y changes from
Rp8.000 to Rp6.000. Calculate the cross elasticity and determined
a relationship between these goods!
10. What is the equilibrium price and quantity of these equation:
Qd = 50 – 5P and Qs = 5 + 10P

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CHAPTER 3
HOUSEHOLD BEHAVIOUR & CONSUMER’S CHOICE

 It is best to think of the household choice problem as one of allocating


income over a large number of goods and services. A change in the
price of one good may change the entire allocation. Demand for some
goods may rise, while demand for others may fall.
 Households allocate income among goods and services to maximize
utility. This implies choosing activities that yield the highest marginal
utility per dollar. In a two-good world, households will choose to
equate the marginal utility per dollar spent on X with the marginal
utility per dollar spent on Y.
 In the labor market, a trade-off exists between the value of the goods
and services that can be bought in the market or produced at home
and the value that one places on leisure. The opportunity cost of paid
work is leisure and unpaid work. The wage rate is the price, or
opportunity cost, of the benefits of unpaid work or leisure
 In addition to deciding how to allocate its present income among
goods and services, a household may also decide to save or borrow.
When a household decides to save part of its current income, it is
using current income to finance future spending. When a household
borrows, it finances current purchases with future income.
 Optimality Condition
CHAPTER 3
HOUSEHOLD BEHAVIOUR & CONSUMER’S CHOICE

Fill in the Blank

1. When price of good X and Y falls, budget constrain will .


2. The difference between the maximum amount a person is willing to
pay for a good and its current market price is .
3. An increase in the wage rate has two effects on the demand for
leisure: the substitution effect and the income effect. As the
wage_ , the worker’s real income rises, and the demand for
leisure will .
4. Both the income and substitution effects imply a relationship
between price and quantity demanded. When the price of a good falls,
the effect tells us that we can buy more of that good and
other goods.
5. Law of diminishing marginal utility stated that the of any
one goods consumed, the satisfaction (utility) generated by
consuming each additional (marginal) unit of that goods.
6. In term of household, demand happens in market, while
supply happen in market.
7. A diagram that shows the quantity of labor supplied at different wage
rates is called .
8. The limit imposed on household choices by income, wealth, and
product price is .
9. Products that are identical to or indistinguishable from one another is
.
10. The change in of X due to this improvement in well-being is
called the income effect of a price change.

True of False

1. A change in the price of one good can change the entire allocation of
income.
2. The real cost of a good or service is its opportunity cost.
3. If we impose a constraint of limited income and fixed prices on
households, those households would not be free to choose which
goods to buy and which not to buy.
4. Constraints exist in the labor market, the amount that household paid
is limited by current market wage rates.
5. Within the constraints of prices, income, and wealth, household
decisions ultimately depend on preferences and tastes.
6. Budget constraints change when prices rise or fall.
7. As the wage increases, a worker will substitute income for leisure
time.
8. Total utility is the additional satisfaction gained by the consumption
or use of one more unit of a good or service.
9. The more of any one good consumed in a given period, the less
satisfaction (utility) generated by consuming each additional
(marginal) unit of the same good is called law of diminishing
marginal utility.
10. Total utility decreases at an increasing rate while marginal utility
decreases.
Multiple Choice

1. Suppose that the price of good Y equals $2. How much is the income
of the consumer?

a. $40
b. $20
c. $30
d. $10
2. Suppose that the income of the consumer equals $20. Use the
information on the graph to determine the prices of goods Y and X.

a. PY = $20, PX =
$12. b. PY = $2, PX = $4.
c. PY = $2, PX = $3.
d. PY=$2, PX = $6.

3. Suppose you have a fixed budget for two


goods, Book and Newspaper. Pb = $10 and Pn = $5. Marginal utilities
of Book and Newspaper are MUb = 60 utils and MUn = 15 utils.
Should the consumption of Book and/or Newspaper be higher, lower,
or remain the same?
a. Both the consumption of goods Book and Newspaper should
decrease.
b. The current combination of goods maximizes total utility.
Consumption should remain the same.
c. Consumption of good Book should increase, and consumption of
good Newspaper should decrease
d. Both the consumption of goods Book and Newspaper should
increase.

4. Among the basic assumptions made in this and some of the following
chapters is perfect competition. Among the characteristics of perfectly
competitive industries is …
a. Homogeneous products and perfect knowledge.
b. Identical products and imperfect knowledge
c. Homogeneous knowledge and imperfect products.
d. Differentiated products and imperfect knowledge.

5. The two fundamental decision-making units in the economy are ….


a. Households and government
b. Household and firms
c. Firms and government
d. Domestic and foreign government

6. The institutions in which suppliers of capital (households that save)


and the demand for capital (firms wanting to invest) interact is called
….
a. financial capital market
b. labor market
c. input market
d. goods and services market
7. In essence, household members must decide how much labor to
supply. The choices they make are affected by, except
a. Availability of jobs
b. Market wage rates
c. How much to work
d. Skills they possess

8. Which point is preferred to the others?

a. Point w is preferred to all other points.


b. Points u and v, or points along the indifference curve, are
preferred to points outside, such as w and t.
c. Point t is preferred.
d. All points are equally preferred.
9. Which two points yield the same total utility?

a. Points w and z.
b. Points b and e.
c. Points z and e.
d. Points b and z.

10. Firm will supply …. and demand ….


a. input ; output
b. goods ; services
c. output ; input
d. labor ; capital

Essay

1. For this problem, assume that Fierera has $80 to spend on food and
books each month. Foods cost $8 each, and books cost $20 each.
Fie’s preferences for foods and books are summarized by the
following information:

Team of Microeconomics I Teaching Assistant | 30


a. Fill in the figures for marginal utility and marginal utility per
dollar for both foods and books.
b. Are these preferences consistent with the law of diminishing
marginal utility? Explain briefly.
2. Explain briefly the water diamond paradox!
3. There are 2 effects that determines the quantity demanded when
prices change. Explain!
4. What is law of diminishing marginal utility? Why did it happen?
5. What’s the difference between opportunity cost and trade off?
6. Draw and explain the circular flow model!
7. Suppose the price of Fish is $10/kg and the price of Meat is $20/kg
and a household has $1000 to spend per month on goods Fish and
Meat.
a. Sketch the household budget constraint.
b. Assume that the household splits its income equally between
Fish and Meat. Show where the household ends up on the budget
constraint.
c. Suppose the household income doubles to $2,000. Sketch the
new budget constraint.

Team of Microeconomics I Teaching Assistant | 31


d. Suppose after the change the household spends $400 on Meat
and $1600 on Fish. Does this imply that Fish is a normal or an
inferior good? What about Meat?
8. During the last 10 years, Bandung, West Java, grew rapidly, with new
jobs luring young people into the area. Despite increases in
population and income growth that expanded demand for housing, the
price of existing houses barely increased. Why? Illustrate your answer
with supply and demand curves!
9. With increased access to wireless technology and lighter weight, the
demand for laptop computers has increased substantially. Laptops
have also become easier and cheaper to produce as new technology
has come online. Despite the shift of demand, prices have fallen.
Illustrate your answer with supply and demand curves!
10. The Indonesia government administers two programs that affect the
market for cigarettes. Media campaigns and labeling requirements are
aimed at making the public aware of the health dangers of cigarettes.
At the same time, the Department of Agriculture maintains price
supports for tobacco. Under this program, the supported price is
above the market equilibrium price and the government limits the
amount of land that can be devoted to tobacco production. Are these
two programs at odds with the goal of reducing cigarette
consumption? As part of your answer, illustrate graphically the effects
of both policies on the market for cigarettes.
CHAPTER 4
THE PRODUCTION PROCESS

 Production is the process by which inputs are combined,


transformed, and turned into outputs.
 All firms must make several basic decisions to achieve maximum
profits: (1) How much output to supply, (2) Which production
technology to use, (3) How much of input to demand.
 Profit (economic profit) is the difference between total revenue and
total cost. Profit = total revenue - total cost
 Total revenue is the amount received from the sale of the product (q
x P).
 Total cost (total economic cost) is the total of (1) out-of-pocket
costs, (2) normal rate of return on capital, and (3) opportunity cost of
each factor of production.
 Normal rate of return is a rate of return on capital that is just
sufficient to keep owners and investors satisfied. For relatively risk-
free firms, it should be nearly the same as the interest rate on risk-free
government bonds.
 Short run: period of time for which two conditions hold: The firm is
operating under a fixed scale (fixed factor) of production, and firms
can neither enter nor exit an industry.
 Long run: period of time for which there are no fixed factors of
production: Firms can increase or decrease the scale of operation, and
new firms can enter and existing firms can exit the industry.
 The Bases of Decisions: (1) The market price of output which
determines potential revenues, (2) The techniques of production that
are available, and (3) The prices of inputs.
 Production function or total product function is a numerical or
mathematical expression of a relationship between inputs and outputs.
 Marginal product is the additional output that can be produced by
adding one more unit of a specific input, ceteris paribus.
∆TP TP2- TP1
 MP = = , where X is input.
∆X X2- X1

 Law of diminishing returns occurs when additional units of a


variable input are added to fixed inputs after a certain point, the
marginal product of the variable input declines.
 Average product is the average amount produced by each unit of a
variable factor of production.
 Two things determine the cost of production:
- Technologies that are available and
- Input prices.
CHAPTER 4
THE PRODUCTION PROCESS

Fill In The Blank

1. Profit (economic profit) is the difference between


and .
2. Changing the of production will change the relationship
between input and output quantities
3. Total revenue of MICRO Firm is $5400 and its total cost is $3700. So,
the profit that will MICRO Firm get is .
4. Short run decision is a condition when a firm is operating under a
____scale of production, and firms can neither enter nor exit an
industry.
5. A graph that shows the combination of two inputs for a given level of
production output is called .
6. is the annual flow of net income generated by an
investment expressed as a percentage of the total investment
7. Marginal product is an additional that can be produced by
adding one more unit of a specific input, ceteris paribus.
8. Production is the process through which inputs are combined and
transformed into .
9. The relationship between inputs and outputs expressed numerically or
mathematically is called a .
10. The law of diminishing returns states that after a certain point, when
additional units of a variable input are added to fixed inputs, the
marginal product of the variable input .
True or False

1. Profit-maximizing firms will choose the technology that minimizes


the cost of production given current market input prices.
2. Firms in an economy with high labor costs have an incentive to use
Labor-intensive technologies.
3. Average product is at its minimum at the point of intersection with
marginal product.
4. Marginal and average product curves can not be derived from total
product curves.
5. Capital-intensive technology is technology that relies heavily on
human labour instead of capital.
6. The shape of the short-run production function is fundamentally
attributed to a capital constraint.
7. In the short run, the firm operates under fixed cost.
8. The relationship between the average product of labor (APL) and the
marginal product of labor (MPL) is When MPL is above APL, APL
rises.
9. Isocost line A graph that shows all the combinations of capital and
labor available for a given total cost.
10. Profit-maximizing firms will minimize costs by producing their
chosen level of output with the technology represented by the point at
which the isoquant is tangent to an isocost line.
Multiple Choice

1. These are three decisions that all firms make to achieve maximum
profit, except ………
a. How much output to supply.
b. Which production technology to use.
c. How much of input to demand.
d. How much output demanded.

2. We can define the Average Product of Capital mathematically:


TP
a. AP =
L
TP
b. AP =
K
∆TP
c. AP =
∆L
∆TP
d. AP =
∆K

3. These conditions are in the long run decision, except .........


a. There are no fixed factors of production
b. Firms can enter the industry
c. Firms cannot exit the industry
d. Firms can increase the scale of operation

4. Firms with high capital costs in an economy have an incentive to


use .........
a. Labour-intensive technologies.
b. Capital-intensive technologies.
c. Less than optimal production technologies.
d. The production method than maximises cost.
5. In competitive market each buyer and seller .........
a. Is price maker
b. Is price taker
c. Do product differentiation
d. Has market power

6. Based on this figure, which point that cost minimizing equilibrium


condition for the firm?

a. Point C.
b. Point D.
c. Point D, C, and B.
d. Point D and B.

7. Marginal Product will equal to Average Product when .........


a. Average product minimum.
b. Average product maximum.
c. Marginal product maximum.
d. Marginal product minimum.

8. Suppose that L1 = 0, L2 = 1, L3 = 2, and L4 = 3. Then, we have TP1 =


0, TP2 = 10, TP3 = 25, and TP4 = 35. What will happen to its marginal
product?
a. It will be increasing.
b. It will be decreasing.
c. It will be the same at 4 point.
d. None the above answer is true.

9. We can get profit from the difference between ......... and .........
a. Total revenue, total cost
b. The sale of the product, total input
c. Pocket cost, opportunity cost
d. Marginal revenue, marginal cost

10. Which of the following statements is correct?


a. At points D, C, and B, the total cost of production is minimized.
b. Points D, C, and B show different combinations of inputs that
yield the same cost of production.
c. At points D, C, and B, the amount of output produced is the
same.
d. All of the above.

Essay

1. Explain the difference condition that will be taken by a firm in the


short run and long run!
2. This table shows you total output of a firm as a function of labour that
it uses:

a. Does the table show the law of diminishing returns? Explain it!
b. Graph curves of total product, average product and marginal
product!
3. Give an explanation how the technology can derive the cost of
production to low cost!
4. Define Isoquant and Isocost using graph and explanation!

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5. A firm earning zero economic profits is probably suffering losses
from the standpoint of general accounting principles. Do you agree or
disagree with this argument? Explain why.
6. Suppose the price of labour is decreasing to $3 and the capital price
remains constant. Now, which one is the optimum production
technology?
7. Look at the graph!

Do you think that MP and AP can be derive from TP? Explain


mathematically!
8. Look at the table below for no 9 and 10! Suppose that a firm want to
produce 100 outputs. There are three technologies that can be used.

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Output Technology A Technology B Technology C

K L K L K L
50 2 8 5 5 7 3
100 7 6 6 7 5 8
150 5 10 7 8 9 6

9. If the price of labour is $6 and the price of capital is $10, which technology is optimum production?
10. Suppose that in 2020, you became president of a small nonprofit theater company. Your playhouse has
120 seats and a small stage. The actors have national reputations, and demand for tickets is enormous
relative to the number of seats available; every performance is sold out months in advance. You are
elected because you have demonstrated an ability to raise funds successfully. Describe some of the
decisions that you must make in the short run. What might you consider to be your “fixed factor”?
What alternative decisions might you be able to make in the long run? Explain! During the early phases
of industrialization, the number of people engaged in agriculture usually drops sharply, even as
agricultural output is growing. Given what you know about production technology and production
functions, explain this seeming inconsistency

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