DP Economics Questionbank

Calculate the marginal revenue resulting from a fall in price from $8 to $6.

Draw and label the marginal revenue (MR) curve for the 2018 Football World Cup final.

Define the term total revenue indicated in bold in the text (paragraph [6]).

Draw and label the marginal revenue (MR) curve for the concert on Figure 3.

Calculate the maximum revenue that could be earned from selling tickets for the concert.

Calculate the change in expenditure on imported oranges as a result of the increase in demand.

Draw and label the marginal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Sketch the marginal revenue (MR) curve for firms in the widget industry.

Sketch the total revenue (TR) curve for firms in the widget industry.

Using the figures provided in Table 1, calculate the monthly level of profits Firm A is making at the current level of output, Q’.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Describe how average cost will be affected if Firm A increases its level of output.

Define the term variable costs indicated in bold in the text (paragraph [7]).

Using an average costs diagram, explain the short-run consequence for shrimp farmers if the price received “is not enough to cover their variable costs” (paragraph [7]).

Define the term marginal cost indicated in bold in the text (paragraph 4).

Define the term increasing returns to scale.

Using the data in Table 1 to support your answer, identify how changes in inputs may result in constant returns to scale and in decreasing returns to scale.

Explain two factors that might give rise to economies of scale for a firm.

Calculate Firm A’s average fixed costs when it is producing 125 cartons of coffee per month.

Calculate Firm A’s average variable costs when it is producing 125 cartons of coffee per month.

Using Figure 2, calculate the average fixed costs when 80 cans per month are produced.

Using Figure 2, calculate the total costs when 55 cans per month are produced.

Explain the relationship between the law of diminishing returns and a firm’s short-run cost curves.

Define the term variable costs indicated in bold in the text (paragraph [4]).

Calculate the average fixed cost per ticket if all tickets are sold.

Explain how two types of economies of scale can lead to a fall in long-run average costs.

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Using information from Figure 1, calculate Firm A’s total fixed costs.

Define the term economies of scale indicated in bold in the text (paragraph [3]).

Using a costs diagram, explain how the expansion of the coconut industry could lead to economies of scale (paragraph [4]).

Explain the reasons for the shape of the long-run average total cost curve.

Sketch the marginal product (MP) and average product (AP) curves for this firm.

Sketch the total product (TP) curve for this firm.

Calculate the firm’s total variable costs if output is 20 000 widgets per month.

Calculate the firm’s monthly total fixed costs if output equals 50 000 units per month.

Using the figures provided in Table 1, calculate the monthly level of profits Firm A is making at the current level of output, Q’.

Determine:

• economic profit if output is equal to 2 units and average cost is equal to $130 per unit.

Calculate Firm B’s short-run profit/loss at the profit-maximizing level of output.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

Assuming the event organizers aim to maximize profit, calculate the profit that will be made from the concert.

Calculate the economic profit/loss when Firm A is producing at the output level identified in part (b)(i).

Based on the information in Figure 2, state whether the firms in this market are making normal profits, economic profits or economic losses.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

State the reason Firm A cannot be a perfect competitor.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether Firm A should increase or decrease its level of output in order to maximize profits. You must give a reason for your choice.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether total revenue collected will increase, decrease or remain unchanged if Firm A increases its level of output. You must give a reason for your choice.

Explain why some firms might choose the goal of profit maximization while others might choose to adopt satisficing behaviour.

The market price of almonds is $11 per kilogram. Using Figure 1, identify the quantity of almonds Firm A must produce in order to maximize profits.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Determine whether Firm A is productively efficient at the current level of output. You must give a reason for your choice.

Using the relationship P = AR > MR > AC > MC and/or figures provided in Table 1:

Explain why allocative efficiency is achieved, in the absence of externalities, at a level of output where price (average revenue) is equal to marginal cost.

Explain why a loss-making firm in perfect competition would shut down in the long run.

Using this information, draw and label the average revenue curve on Figure 2.

(ii) Using Figure 2, identify the quantity of cans per month Firm B must produce in order to maximize profits.

(iii) Calculate the economic profit when Firm B is producing at the output level identified in part (ii).

State two characteristics of a perfectly competitive market.

On Figure 2, draw and label appropriate additional curves to show how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.

Using your answer to part (c)(ii), explain how the market adjustment takes place.

Using a perfect competition diagram, explain whether farmers in the Philippines are making an economic profit or loss (Table 1).

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

Identify the level of output at which the firm would achieve productive efficiency.

On the following axes, sketch a fully labelled diagram showing the level of output Q’ for which the relationship
P = AR > MR > AC > MC is true. The use of figures provided in Table 1 is not required.

Explain why a profit-maximizing monopolist would never choose to operate on the inelastic portion of its demand curve.

Discuss the view that perfect competition is a more desirable market structure than monopoly.

Discuss the view that legislation is the best way of dealing with the problem of monopoly power.

Discuss whether price will always be lower and output will always be higher in perfect competition compared to monopoly.

Using the diagram and your answers to parts (j) and (k), explain how the organizers could achieve their goal of profit maximisation.

Using a theory of the firm diagram, explain the output and pricing decision of M-Kopa if it chooses to pursue the goal of revenue maximization (paragraph [6]).

Evaluate the view that monopoly is an undesirable market structure as it fails to achieve productive and allocative efficiency.

Examine the role of barriers to entry in making monopoly a less desirable market structure than perfect competition.

Discuss the view that barriers to entry in a monopoly will always lead to abnormal profits in the long run.

State two assumed characteristics of a monopoly.

Explain two reasons why a monopoly may be considered desirable for an economy.

Using Figure 3, calculate the economic profit when Firm B is maximizing its profits.

Using Figure 3, calculate the total revenue when Firm B is maximizing its revenue.

Explain how a natural monopoly may arise.

Discuss how governments restrict monopoly power.

Discuss the consequences of a perfectly competitive market becoming a monopoly market.

Discuss the view that governments should always try to prevent the creation of barriers to entry in a market.

State two characteristics of monopolistic competition.

Using the diagram, explain how long-run equilibrium will be reached.

With reference to the diagram, outline whether allocative efficiency will be achieved in the long run in a monopolistically competitive market.

Sketch and label a diagram to illustrate the long-run equilibrium for a firm in monopolistic competition.

Explain why a monopolistically competitive firm can make economic (abnormal) profit in the short run, but not in the long run.

Now assume that the market in which Firm A operates has evolved into an oligopoly with only two firms, Firm A and Firm B. Each firm can cut price or maintain the current price. The following payoff matrix shows the profits they face. The profit payoffs for Firm A are in bold.

Using the profit figures in the payoff matrix, explain why strategic interdependence will lead both firms to cut price.

Discuss whether an oligopolistic firm should collude rather than compete.

Firm B conducted a market survey and found out that the price elasticity of demand for its brand of tea is 0.8 among urban customers, whereas it is 1.2 among customers in rural areas. The sales director said “This information could help Firm B to raise its revenue, by trying to separate the two markets, provided that certain conditions are satisfied”. Explain this statement.

State two conditions necessary for price discrimination to take place.

Using a diagram (or diagrams), explain why a profit maximizing firm might charge a higher price in one market than in another.