STUDENT ID NO

MULTIMEDIA UNIVERSITY

TAKE HOME TEST

TRIMESTER 1, 2020/2021

BEC1054 FUNDAMENTALS OF ECONOMICS

(All sections / Groups)

29 AUGUST 2020
2.00 p.m – 5.00 p.m.
(3 Hours)

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INSTRUCTIONS TO STUDENTS

1. This question paper consists of SIX (6) printed pages:

Section A: Twenty (20) multiple choice questions (20%)
Section B: Two (2) structured questions (20%)

2. Transfer all your answers in Section A to the prepared Table on Answer Sheet
and answer all Section B in the Answer Sheet (including tables and graphs).

3. Marks are shown at the end of each question.

BEC1054 FUNDAMENTALS OF ECONOMICS 29 AUGUST 2020

Section A: Multiple Choice Questions (20 Marks)

1. Which of the following products would be considered scarce?

A. Golf clubs
B. Picasso paintings
C. Apples
D. All of the above are correct.

2. Which of the following is a principle concerning how people interact?

A. Markets are usually a good way to organize economic activity.
B. Rational people think at the margin.
C. People respond to incentives.
D. All of the above are correct.

Table 1. Production Possibilities for Toyland

Dolls Fire Trucks

400 0
300 200
200 350
100 450
0 500

3. Refer to Table 1, what is the opportunity cost to Toyland of increasing the production
of dolls from 200 to 300?
A. 200 fire trucks
B. 150 fire trucks
C. 100 fire trucks
D. It is impossible to tell what the opportunity cost is since in this example costs are
not constant.

4. Nancy likes pasta today more than she did yesterday. This fact leads us to conclude
that __________________________
A. Nancy must now consider pasta a luxury.
B. Nancy must have experienced an increase in her income.
C. Nancy is now willing to pay more than before for pasta at each relevant price of
pasta.
D. the supply of pasta must have increased and stimulated Nancy’s enhanced taste
for pasta.

Continued…

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BEC1054 FUNDAMENTALS OF ECONOMICS 29 AUGUST 2020

5. Suppose that demand for a good increases and, at the same time, supply of the good
decreases. What would happen in the market for the good?
A. Equilibrium price would decrease, but the impact on equilibrium quantity would
be ambiguous.
B. Equilibrium price would increase, but the impact on equilibrium quantity would
be ambiguous.
C. Both equilibrium price and quantity would increase.
D. Both equilibrium price and quantity would decrease.

6. Demand is said to be elastic if __________________________.

A. the price of the good responds substantially to changes in demand
B. demand shifts substantially when income or the expected future price of the good
changes
C. buyers do not respond much to changes in the price of the good
D. buyers respond substantially to changes in the price of the good

7. For a good that is a luxury, demand __________________________.

A. tends to be inelastic
B. tends to be elastic.
C. has unit elasticity.
D. cannot be represented by a demand curve in the usual way.

8. Price ceilings and price floors that are binding __________________________.

A. are desirable because they make markets more efficient and more equitable
B. cause surpluses and shortages to persist since price cannot adjust to the market
equilibrium price
C. can have the effect of restoring a market to equilibrium
D. are imposed because they can make the poor in the economy better off without
causing adverse effects

9. Price controls __________________________.

A. always produce an equitable outcome
B. always produce an efficient outcome
C. can generate inequities of their own
D. produce revenue for the government

10. Which of the following is an implicit cost?

(i) The owner of a firm forgoes an opportunity to earn a large salary working for a
Wall Street brokerage firm
(ii) Interest paid on the firm’s debt
(iii) Rent paid by the firm to lease office space

A. (ii) and (iii)

B. (i) and (iii)
C. (i) only
D. (iii) only

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BEC1054 FUNDAMENTALS OF ECONOMICS 29 AUGUST 2020

11. Let L represent the number of workers hired by a firm and let Q represent that firm's
quantity of output. Assume two points on the firm's production function are (L = 12, Q
= 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is
__________________________.
A. 8 units of output.
B. 10 units of output.
C. 122 units of output.
D. 132 units of output.

12. The minimum points of the average variable cost and average total cost curves occur
where __________________________.
A. the marginal cost curve lies below the average variable cost and average total cost
curves.
B. the marginal cost curve intersects those curves.
C. the average variable cost and average total cost curves intersect.
D. the slope of total cost is the smallest.

13. When firms are said to be price takers, it implies that if a firm raises its price,
__________________________.
A. buyers will go elsewhere
B. buyers will pay the higher price in the short run
C. competitors will also raise their prices
D. firms in the industry will exercise market power

14. When firms have an incentive to exit a competitive market, their exit will
__________________________.
A. lower market price
B. necessarily raise the costs of firms that remain in the market
C. raise profits for firms that remain in the market
D. reduce demand for the product

15. When a monopolist increases the amount of output that it produces and sells, its average
revenue __________________________.
A. increases and its marginal revenue increases
B. increases and its marginal revenue decreases
C. decreases and its marginal revenue increases
D. decreases and its marginal revenue decreases

Continued…

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BEC1054 FUNDAMENTALS OF ECONOMICS 29 AUGUST 2020

16. If, in a particular market, firms sell identical products, then the market is
__________________________.
(i) perfectly competitive
(ii) monopolistically competitive
(iii) an oligopoly

A. (i) or (ii)
B. (ii) or (iii)
C. (i) or (iii)
D. (i) only

17. After initial success, the OPEC cartel saw the price of oil and the revenues of its
members decline due, in part, to __________________________.
A. the low elasticity of demand for oil in the short run
B. the large number of buyers from each member nation
C. surging demand for oil in the early 1980s
D. OPEC members not producing their agreed upon production levels

18. Monopolistic competition differs from perfect competition because in monopolistically

competitive markets __________________________.
A. there are barriers to entry
B. all firms can eventually earn economic profits
C. each of the sellers offers a somewhat different product
D. strategic interactions between firms is vitally important

19. Monopolistic competition is considered by some to be inefficient because

__________________________.
A. price exceeds marginal cost
B. output exceeds capacity output
C. long-run profits are positive
D. barriers to entry limit the number of firms in the market

20. When monopolistically competitive firms advertise, in the long run

__________________________.
A. they will still earn zero economic profit
B. they can earn positive economic profit by increasing market share
C. the market price must fall
D. the market price must rise

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BEC1054 FUNDAMENTALS OF ECONOMICS 29 AUGUST 2020

Section B: Structured Questions (20 Marks)

Question 1 (10 marks)

(a) As the price of good A decreases from RM20 to RM15, the quantity demanded of good B
decreases from 150 units to 100 units. Compute the cross elasticity of demand. Are good
A and good B substitutes, complements or unrelated? (2 marks)

(b) David’s Donuts will begin selling donuts next week. David figures that the ingredients
necessary to make donuts will cost RM0.10 per donut. He has paid RM5,600 for the donut-
making machinery and one year’s rent.

What will David’s average total costs be if he sells 4,000 donuts in one week and then goes
out of business? (2 marks)

(c) Raymond is one of the leading widget producers in the country. His total costs amount to
RM8,000, total fixed costs are RM4,000, and average total costs are RM400.

How many widgets is Raymond producing? (2 marks)

(d) What is price discrimination? Explain the conditions for a success of price
discrimination. (4 marks)

Question 2 (10 marks)

The following Table 2 summarises the conditions for each monopolist.

(a) Calculate the missing numbers for each monopolist. Recreate the table in your
answer booklet. (7 marks)

(b) For each of the following three operational decisions, determine which of the
monopolists (only ONE monopolist to be chosen for one operational decision, that
is, Monopolist A, B, C or D) should make such a decision and explain why a
particular decision is reached:

(i) To continue producing at the same level of output;

(ii) To increase output;
(iii) To shut down. (3 marks)

Table 2.
Monopolist P MR TR Q TC MC ATC AVC
A 11 8 20 200 5 9
B 3 1 100 1.5 2.5 2
C 4 2 200 2 7 5
D 8 5 10 70 5 7 6
End of Question

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