CONFIDENTIAL BM/APR 2010/ECO162/104

UNIVERSITI TEKNOLOQI MARA

FINAL EXAMINATION

COURSE MICROECONOMICS
COURSE CODE ECO162/104
EXAMINATION APRIL 2010
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of three (3) parts : PART A (20 Questions)
PART B (4 Questions)
PART C (4 Questions)

2. Answer ALL questions from PART A and PART B, and two (2) questions from PART C.

i) Answer PART A in the Objective Answer Sheet.

ii) Answer PART B and PART C in the Answer Booklet. Start each answer on a new
page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty
iii) an Objective Answer Sheet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 12 printed pages
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PART A

1. Microeconomics is concerned with

A. changes in the overall level of economic activities.

B. the entire economic system.
C. specific unit of the economic system.
D. reducing inflation rate and stimulating economic growth .

2. All these are related to Islamic economics except

A. achieving Al Falah.
B. producing halal goods.
C. strengthening brotherhood.
D. separating economic activities from religion.

3. Which of the following is not considered as resources in conventional economics?

A. Money.
B. Buildings.
C. Workers.
D. Machineries.

4. A leftward shift of leather shoes supply curve might be caused by

A. an improvement in the relevant technique of production.

B. a decline in the prices of inputs.
C. a decrease in consumer incomes.
D. exit of some firms in that industry.

5. To increase total revenue when the demand is elastic, a firm should

A. increase the price.

B. decrease the price.
C. not change the price.
D. follow the market price.

6. If the demand for VCD decreases as income decreases, VCD is

A. a normal good.
B. an inferior good.
C. a substitute good.
D. a complementary good.

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7. Dharuriyyah and Kamaliyyah goods are respectively

A. necessity and luxury goods.

B. inferior and luxury goods.
C. comfort and luxury goods.
D. necessity and comfort goods.

8. The price of pizza increases by 22% and the quantity demanded of pizza falls by
25%. This indicates that demand for pizza is

A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly elastic.

9. An increase in the sales tax on cigarettes raises the price of cigarettes by shifting the

A. demand curve for cigarettes rightward.

B. demand curve for cigarettes leftward.
C. supply curve for cigarettes rightward.
D. supply curve for cigarettes leftward.

10. Which of the following measures will assist the government to control price hike of
sugar during Raya celebration?

A. Price floor.
B. Price ceiling.
C. Increase in taxes.
D. Decrease in subsidies.

11. The law of diminishing returns is most useful to explain the

A. shape of the marginal product curve.

B. shape of the long run average fixed cost curve.
C. decline in average fixed cost as output increases.
D. decline in total fixed cost as output increases.

12. Suppose a firm has an output of 10,000 bottles and a total fixed cost of RM2.000. At
an output of 5,000 bottles, the average fixed cost is

A. RM 0.30.
B. RM 0.40.
C. RM 0.50.
D. RM 0.60.

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13. Which of the following statements about the long run average total cost curve is true?

A. It is an enveloping curve mapped out by the short run average cost curves for
alternative plant sizes.
B. It intersects the maximum point of each short run average total cost curve.
C. It rises throughout its entire range when increasing returns are present.
D. It falls throughout its entire range due to the law of diminishing returns.

14. Marginal cost is the change in

A. total fixed cost that results from producing one more unit of output.
B. total cost that results from producing one more unit of output.
C. average variable cost that results from producing one more unit of output.
D. average total cost that results from producing one more unit of output.

15. Perfect competition is different from other market structures because

A. each firm maximises profit where marginal revenue equals marginal cost.
B. firms within the industry are making identical short run profits.
C. firms are free to leave the industry.
D. individual firm does not have the ability to influence the market price.

16. When a perfectly competitive firm is in long run equilibrium, all of the following are
true except

A. long run marginal cost is equal to marginal revenue.

B. long run marginal cost curve is at its minimum point.
C. price and long run average cost are equal to each other.
D. firms in the industry are earning normal profit.

17. At the profit maximising output for a monopolist, price

A. equals marginal cost.

B. exceeds marginal cost.
C. exceeds average total cost.
D. equals marginal revenue.

18. The kinked-demand curve of an oligopolist is based on the assumption that

A. competitors will follow a price cut but ignore a price increase.

B. competitors will match both price cuts and price increases.
C. competitors will ignore a price cut but follow a price increase.
D. competitors will ignore both price cuts and price increases.

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19. If a monopolist engages in price discrimination, it will

A. realise a smaller profit.

B. charge a higher price where demand is inelastic and a lower price where
demand is elastic.
C. produce a smaller output than when it did not discriminate.
D. charge a competitive price to all customers.

20. Accounting profits are typically

A. greater than economic profits because the former do not take explicit costs
into account.
B. equal to economic profits because accounting costs include all opportunity
costs.
C. smaller than economic profits because the former do not take implicit costs
into account.
D. greater than economic profits because the former do not take implicit costs
into account.

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PARTB
QUESTION 1
1 ' •• • — — ' - -

Palm oil prices may rise 21% on stronger demand

NUSA DUA, Indonesia: Malaysian palm oil prices may rise up to 2 1 % by the first quarter
of 2010 from their current levels on strong demand and as hotter weather hits yields, a
top industry analyst said yesterday. Dorab Mistry, head of vegetable oils trading at
Godrej International, raised his forecast for the first three months to RM2,800-RM3,000 a
tonne from an earlier estimate of RM2,400."I expect palm oil prices to rise at the fastest
pace in relation to all other vegetable oils," Mistry told the Indonesian Palm Oil
Conference and Price Outlook 2010 meeting in Bali. Palm oil's gains would narrow its
spread to Argentine soya oil as the South American vegetable oil would rise at a slower
pace, London-based Mistry said. He did not give a timeframe.

The El Nino weather pattern, which can cause drought conditions in the Asia-Pacific
region, may hit Malaysian palm production hard and limit the output. "It is conceivable
that 2010 (Malaysian) crude palm oil production will turn out to be less than 2009," Mistry
said. Production in Malaysia could fall below 17.5 million tonnes next year also due to the
end of the high output cycle, Mistry said.

Indonesia would be less affected with drier weather limiting additional output by 1 million
to 1.5 million tonnes, the analyst said, lower than other forecasts by government and
industry officials for about 2 million tonnes. The weakness in palm oil output growth
suggested that additional supply would only reach 3.25 million tonnes in the year to
September 2010 against incremental demand of 5.5 million, Mistry said.

Source: The Star, Saturday December 6, 2009

Based on the above article, answer the following questions.

a) Explain law of demand.

(2 marks)

b) List two (2) reasons why the price of palm oil is forecasted to increase by the first
quarter of 2010.
(2 marks)

c) Based on the reasons that you gave in (b), using a diagram show the situation in the
market that causes the price of palm oil to increase in the future.
(2 marks)

d) What will be the effect of an increase in the price of palm oil on the demand for soya
oil? State the relationship between two products.
(2 marks)

e) With the aid of a diagram, show the relationship between palm oil and soya oil.
(2 marks)

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QUESTION 2

a) The diagram below shows the production possibilities curve (PPC) for an economy.

Motorcycle
{000 units)

250 i i
A (0,200)
200
B {20,150)
150
C (40,100)
100
D (60,50)
50
r. (80,0}
0
•
10 20 30 40 50 60 70 80 90
Car {'000 units)

i) State three (3) basic assumptions of PPC.

(3 marks)

ii) Compute the opportunity cost per unit of car for all combinations.
(2 marks)

iii) State the type of opportunity cost.

(1 mark)

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b) The diagram below shows the equilibrium position of a consumer. The budget line
(BL) and indifference curve (IC) are shown in the diagram.

• Good B

W(4,20)

* Good A
12 16 20 24 28

Define indifference curve.

(2 marks)

At which point does the consumer achieve equilibrium? State the quantity of
good A and good B at the equilibrium.
(2 marks)

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QUESTION 3

a) The table below shows demand, revenue and cost for a monopolist.

Price Quantity Total Marginal Marginal

(RM) demanded revenue revenue cost
(units) (RM) (RM) (RM)
2200 5 -
2000 6 1000
1800 7 1200
1600 8 1400

Answer the following questions.

i) Complete the columns for total revenue and marginal revenue.

(2 marks)

ii) Determine the profit maximising price and output.

(2 marks)

iii) Suppose the firm's total cost is RM9.000 at the profit maximising output,
calculate the firm profit and determine the type of profit.
(2 marks)

b) The table below shows the costs of production of a firm. Complete the columns of
total variable cost (TVC), average total cost (ATC), average variable cost (AVC) and
marginal cost (MC)

Output TC TVC ATC AVC MC

(units) (RM) (RM) (RM) (RM) (RM)
0 100
1 190
2 270
3 340
4 400
5 470
6 550
7 640
8 750
9 880
10 1030

(4 marks)

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QUESTION 4

The diagram below shows the short run equilibrium of a firm.

Cost / Price / Revenue (RM)

v Output (units)
10 15

a) Label curves A, B, C and D.

(2 marks)

b) In which market structure is this firm operating? Why?

(2 marks)

c) What are the equilibrium price and quantity?

(2 marks)

d) Calculate the total revenue (TR) and total cost (TC) at equilibrium. Determine the
type of profit earned by the firm.
(3 marks)

e) What type of profit is earned in the long run?

(1 mark)

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PARTC

QUESTION 1

a) Explain the following Islamic economic concepts.

i) Hablumminallah.
ii) Hablumminannas.
iii) Tarafiyyah.
iv) Hajjiyyah.
(10 marks)

b) Discuss any two (2) features to distinguish between a planned economic system and
a free market economic system.
(10 marks)

QUESTION 2

a) Using appropriate diagrams, explain any four (4) degrees of price elasticity of
demand.
(10 marks)

b) With the aid of a diagram, explain the effects of tax incidence on consumers and
producers when demand is elastic.
(10 marks)

QUESTION 3

a) With the aid of a diagram, explain the three (3) stages of production.

(10 marks)

b) i) Distinguish between economies of scale and diseconomies of scale.

(4 marks)

ii) Explain any two (2) factors of economies of scale and diseconomies of scale.

(6 marks)

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QUESTION 4

a) With the aid of diagrams, explain short run equilibrium of a monopolistically

competitive firm.
(12 marks)

b) Write short notes on any two (2) of the following:

i) Demand for labor.

(4 marks)
ii) Supply of labor.
(4 marks)
iii) Price discrimination.
(4 marks)
iv) Any two (2) characteristics of monopolistic competition.
(4 marks)

END OF QUESTION PAPER

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