BUSINESS ADMINISTRATION DEPARTMENT

HOA LAC
FINAL EXAMINATION
SUBJECT: Microeconomics (ECO111) - Essay
Duration: 120 minutes

Student Information
Name: Roll number:
Room No: Class:

FOR TEACHER ONLY

MARK MARKED BY Signature of Proctor
(NAME AND SIGNATURE)

Instructions:
Students have 120 minutes for this exam section. Students are not allowed to use any materials. Simple
calculators are allowed. Numerical answers without calculations do not have full credits. All graphs
should have necessary labels.

Question 1 (5 points)
Suppose the market demand curve for a monopolist is given as P = 200 – 2Q. Furthermore, suppose
the MC curve for the firm can be written as MC = 20 + 2Q. The firm’s TC can be expressed as
TC = 20Q + Q2 + 100. Use this information to answer this set of questions.

a. What is the profit maximizing price and quantity for this monopolist given the above
information? Calculate the monopolist’s profit.

b. Calculate the monopolist’s consumer surplus (CS), producer surplus (PS), and
deadweight loss (DWL).

c. Suppose demand increases by 90 units at every price. Find the equation for the
monopolist’s new demand curve. Then, calculate the new profit maximizing price and
quantity for this monopolist given the new demand curve. Calculate the new level of
monopoly profits.

d. Calculate the value of consumer surplus (CS’), producer surplus (PS’), and deadweight
loss (DWL’) for this monopolist given the information in (c).
Question 2 (5 points)

Kate’s Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate’s
machinery costs $100 per day and is the only fixed input. Her variable cost consists of the wages paid
to the cooks and the food ingredients. The variable cost per day associated with each level of output is
given in the accompanying table.

Q VC ($)
0 0
10 200
20 300
30 480
40 700
50 1,000

a. Calculate the total cost, the average variable cost, the average total cost, and the marginal
cost for each quantity of output.

b. What is the break-even price? What is the shut-down price?

c. Suppose that the price at which Kate can sell catered meals is $21 per meal. In the short run,
will Kate earn a profit? In the short run, should she produce or shut down?

d. Suppose that the price at which Kate can sell catered meals is $17 per meal. In the short run,
will Kate earn a profit? In the short run, should she produce or shut down?